Why Metrobank's PHP7.15b sale of non-core assets is credit positive

Tier 1 capital ratio will increase to 15.3%.

Moody's notes that on 27 June, Philippines-based Metropolitan Bank & Trust Company announced that it had concluded a share sale and purchase agreement to sell a 20% equity stake in Global Business Power Corporation to ORIX Corporation of Japan for PHP7.15 billion.

Here's more from Moody's:

This sale is credit positive for MBT because we estimate its consolidated Tier 1 capital ratio will increase to 15.3% from 14.8% at the end of March, after factoring in the gains from the share sale. Such a ratio compares with the 14.7% average Tier 1 ratio at the end of March for the Philippines-based banks we rate.

Another credit positive is that the disposal allows MBT to avoid a punitive deduction in its Tier 1 capital that results from equity investments in non-financial entities under the new Basel III capital framework to be implemented next year.

We estimate that if MBT had retained its current stake in GBPC, its Tier 1 ratio would decline to 13.6% under the new capital regime, based on March 2013 financials.

From a strategic perspective, the transaction reflects MBT’s proactive efforts to dispose of non-core assets and free up capital in preparation for business growth and higher capital requirements under the new Basel III regime. We understand that management plans to dispose of its remaining 29% stake in GBPC by the end of 2013.

The bank had previously sold its holdings in Toyota Motor Philippines to GT Capital via two separate transactions, one in December 2012 and the other in January 2013, for a total of PHP9 billion. The latest sale continues the bank’s strategy of monetizing its non-core assets and deploying capital to fund its core lending business.

In late May, the bank announced that it had received approval from Bangko Sentral ng Pilipinas, the Philippines’ central bank, to pay dividends amounting to a 30% payout ratio in the form of stock rather  than cash.

We view this initiative as credit positive because it demonstrates the proactive stance the bank is taking on capital management. The stock dividend will allow it to retain capital for future growth, as opposed to a cash dividend payout.

MBT is the second-largest bank in the Philippines, with market share of about 14% by loans and 13% by deposits.