Economy: Central bank keeps policy rate, hikes SDA rate. Yesterday the monetary board of the central bank decided to keep the policy rate at 3.5% as we hoped they would do. According to the formal statement, the monetary board believes future inflation is likely to stay within the target of 3-5% in 2014 and 2-4% for 2015. However, the interest rate on special deposit accounts was raised 25bps to 2.25%. The modest adjustment in interest rate is to counter risks to price and financial stability arising from ample liquidity. Note that April M3 growth of 32.1% YoY was still robust, but slower than March’s 34.7% rise, Indeed, M3 growth has been slowing since January when it reached 37.3%, the fastest growth since the central bank started to limit access to the SDA facility in July 2013. We believe the impact of the SDA rate hike will be minimal given the modest size. While the amount in the facility will probably not rise significantly as access has become more selective, it may slow the exit of SDA funds.
Utilities: AP buys 100% stake of LiMA Utilities Corp. Aboitiz Power Corp (AP – HOLD) disclosed it acquired 100% stake in LiMa Utilities Corp (LUC), an electricity distribution utility operating in LiMA Technology Center, Batangas. AP bought 8m common shares of LUC from affiliate LiMA Land Inc, a wholly-owned subsidiary of Aboitiz Land Inc, at a price of PHP166.2083/sh or a total consideration of HP1.33b. Aboitiz Land is a wholly-owned subsidiary of AP’s parent, Aboitiz Equity Ventures Inc (AEV – SELL).The acquisition is in line with the company’s strategy of expanding its EnerZone brand.
Banks: RCB raises PHP7b in Basel III Tier 2 notes. Rizal Commercial Banking Corp (RCB – BUY) has raised PHP7b worth of Basel IIIcompliant Tier 2 notes yesterday, higher by PHP2b from original target. It closed the public offering one day ahead of its 20 June deadline due to oversubscription. Issuance of the note will be on 27 June and will have a tenor of 10 years and 3 months. Coupon rate is 5.375%, 142bps over the 10-year PDST-F government benchmark rate of 3.95% and similar to the rate fetched by second largest bank Metrobank (MBT HOLD) for its PHP16b Tier 2 notes raised early this year. As of end-March, RCB reported a Basel III Tier 1 ratio of 10.72% and CAR of 11.31%. We estimate the new issuance could boost CAR by 2pps to 13.3%.
Banks: PBB buys a rural bank. Philippine Business Bank (PBB – BUY) will purchase 100% of Rural Bank of Kawit for a total consideration of PHP15m. PBB will pay in cash as it had PHP590m at end-March. Based on latest data as of end-2012, Rural Bank of Kawit had assets worth PHP367m (0.8% of PBB), loans of PHP168m (0.5%), deposits of PHP315m (0.8%) and capital of PHP35m (0.5%). It has one branch in Kawit, Cavite and net income of PHP572,352. Gross income in 2012 reached PHP15.4m with operating costs of PHP14.8m, leading to a high cost-to-income ratio of 96.1%. Bulk of lending stems from agrarian reform (21% of total), and real estate, renting and business services loans (20%). It registered end-2012 ROE of 2%, NIM of 5%, CAR of 9.86%. In terms of asset quality, it has gross NPL of PHP65m, equivalent to NPL ratio of 35%. This will increase PBB’s NPL by 8% to PHP876m and will slightly raise NPL ratio to 2.6% from 2.5%. Due to its small scale of operations, any impact on PBB’s financials will be minimal. The main incentive for PBB is the potential branch licenses the central bank can grant, in line with the SPRB Plus program that aims to strengthen the country’s rural banks.
- ATR Securities
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