Credit rating agency Moody’s Investors Service still tags Aboitiz-led Union Bank of the Philippines (UnionBank) with a negative ratings outlook while affirming a “Baa2” ratings on moderate risk. In its latest commentary on UnionBank ratings issued late Friday, April 28, Moody’s said the outlook remains negative amid lingering uncertainty regarding the bank’s minimum capital requirement. “The outlook remains negative because of uncertainty related to the bank's plan to improve its core capital ratio to a level that will be commensurate with that of its domestic and regional peers,” said Moody’s. It added that it will “need to see a longer track record of improvements in the net interest margin and bottom-line profitability, before reverting the outlook back to stable.” Meanwhile, the “Baa2” ratings imply moderate credit risk. The ratings apply to its long-term local and foreign currency bank deposit ratings, long-term local and foreign currency issuer ratings, and foreign currency senior unsecured ratings. The outlook on these ratings remains negative, said Moody’s. The current baseline credit assessment (BCA) and adjusted BCA is at “baa3”. Moody’s said the ratings, negative outlook and BCA score were based on UnionBank's “mildly improved solvency position” after its P12 billion capital increase in February this year, and this followed “a material capital decrease related to the acquisition of Citigroup retail business.” The bank bought Citi Philippines’ consumer banking business in 2022. Moody's also said its “expectation of stabilizing asset quality due to post-pandemic economic recovery and higher core profitability in the next 1 to 2 years from cost synergies from the recent acquisition and the bank's expansion into the higher-yielding retail loans” were also factors for their current assessment of UnionBank. Meanwhile, the “Baa2” ratings includes the “one-notch uplift” of the BCA baa3 on the back of Moody's “assumption of moderate probability of support from the Philippines government (Baa2 stable).” Moody’s said while UnionBank which is the country’s ninth biggest bank out of 45 large lenders -- is targeting a higher capital ratio this year – “the execution of this plan is subject to inherent uncertainty around the level of profitability and asset growth.” As to factors that could downgrade the bank’s ratings, Moody’s said that given the negative outlook “(the bank’s) ratings are unlikely to be upgraded over the next 12–18 months.” “Nevertheless, Moody's could change the outlook to stable if the bank's TCE/RWA (tangible common equity/risk weighted assets) ratio improves to 14% and core return on assets improves to above 1.5% on a sustainable basis while keeping asset quality stable. (But) Moody's could downgrade UBP's (UnionBank) long-term ratings and BCA if material improvements in the TCE ratio and profitability fail to materialize; or if its NPL ratio increases to above 6%,” it added. UnionBank is expected to have  sustainable return on assets amid higher margins and a larger unsecured loan book, said Moody’s. “However the extent of improvements will depend on the bank's ability to grow the book, and control the related credit risk, as well as funding and operating costs,” it noted. As for funding and liquidity, the credit company expects UnionBank will continue to be broadly stable.