Moody’s Investors Service said the merger of Ayala led-Bank of the Philippine Islands (BPI) and the Gokongwei Group’s Robinsons Bank Corp. (RBC) will have a limited impact on BPI’s credit quality while it will “moderately” increase its soured loans.

In a commentary following the Sept. 30 BPI announcement of its acquisition of RBC, credit scorer Moody’s said the transaction “will have a limited impact on BPI's credit quality because RBC represents just 7% of the combined banks by total assets as of end of June 2022.”

“On a pro forma basis, we expect BPI’s Common Equity Tier 1 ratio to decrease by about 10 basis points after the merger but remain at a still high level of 14%-15% in the next 12-18 months,” said Moody’s.

It also noted that BPI's nonperforming loan (NPL) or soured loans ratio will “increase moderately” by some 10 basis points “but will remain in the range of 2%-2.5% in 2023.”

“The increase is because RBC's asset quality is relatively weaker than of BPI, driven by the latter's focus on high risk but high return retail loans. Rising inflation and interest rate hikes will also dampen BPI's post-pandemic asset quality improvements,” said Moody’s.

Meantime, Moody’s said that “although RBC’s net interest margin (NIM) is higher than BPI’s, its profitability as denoted by return on assets has traditionally lagged BPI because of high operating expenses.”

It added that “potential upside to profitability due to RBC's strong NIM could be realized if BPI manages to rationalize RBC's operating expenses and achieve cost synergies by using its existing extensive franchise and network post merger.”