AUB Receives High Rating

Pasig—(PHStocks)—Asia United Bank Corp. (PSE: AUB) received an issuer rating of PRS Aa (corp.) from Philippine Rating Services Corporation (PhilRatings).

An issuer rating is an opinion on the general and overall creditworthiness of the issuer, evaluating its ability to meet all its financial obligations within a time horizon of one year. The focus is on financial strength and stability under normal and stressed conditions to be able to meet existing and prospective financial obligations.

A company rated PRS Aa (corp.) differs from the highest-rated corporates only to a small degree, and has a strong capacity to meet its financial commitments relative to that of other Philippine corporates.

The issuer rating of AUB reflects the following:

• the bank’s sound funding profile;
• the expectations that its profitability will remain stable, as AUB continues to focus on its core business of lending;
• the bank’s aggressive growth strategy to support its strategic goal, given AUB’s status as a mid-size player; and
• the positive outlook for the domestic economy, which remains supportive of the country’s banking industry.

AUB’s funding base predominantly consisted of customer deposits, and demonstrated low reliance on wholesale funding sources. As of 31 March 2015, deposits accounted for a high 92.3% of total liabilities. The bank’s funding profile is considered sound, with the more stable, lower-cost current and savings accounts (CASA) representing the bulk of deposits. Forecast shows that CASA will continue to be AUB’s primary funding source in 2015 to 2017.

Deposit growth has been and will be sustained largely by the bank’s push for more branches and its deposit-generation campaigns. Return on average assets (ROAA) will be relatively stable from 2014 to 2016, and will increase in 2017. Net income growth will be sustained in 2015 to 2017, supported by higher interest income from loan portfolio growth and higher service charges, fees, and commissions, coming from a higher volume of branch transactions, loans, trust investment products, and remittances. Net interest income will continue to account for bulk of revenues. The forecast reflects AUB’s strategy to utilize its strong deposit-generation ability to expand the bank’s loan portfolio. Net interest margins will post hikes in 2016 and 2017, given the increased share of consumer loans relative to the bank’s loan portfolio.

Business growth in the last five years (2010 to 2014) has been aggressive as the bank continued to pursue its objective of becoming one of the country’s top banks. From 66 branches as of end-2010, AUB and its subsidiaries (the Group) ended the first quarter of 2015 with 221 branches which were geographically spread across the country. The Group’s loans and receivables stood at PhP72.9 billion as of March 31, 2015, from PhP24.2 billion as of December 31, 2010. Deposits, on the other hand, amounted to PhP98.5 billion as of end-March 2015, from PhP36.7 billion as of end-2010.

Acquisition and merger activities have contributed to the bank’s growth in previous years and are likely to do so going forward, given management’s acknowledgement that it would be difficult to achieve its objective solely through organic growth. As of report writing date, AUB is considered a mid-size player in the country’s banking industry. Based on its published balance sheet, AUB’s ranking among universal and commercial banks as of December 31, 2104 was as follows: 17th in terms of total assets (PhP122.8 billion); 17th in total deposits (PhP94.7 billion); 14th in net loans (PhP68.2 billion) and 13th in total capital (PhP20.1 billion). As of March 30, 2015, AUB’s ranking went up one notch to 16th place in terms of total assets (PhP125 billion).

The Philippine banking industry continues to benefit from the country’s strong macroeconomic growth. Lending activities remained robust for the entire banking industry for the first quarter of 2015. Despite a marginal decline of 1% from end-2014 levels, corporate loan demand continued to be strong at PhP4.5 trillion. Main contributors included real estate (21.5%), manufacturing (16.5%), and wholesale and retail trade (15.8%). Consumer loans, which accounted for 9.8% of total portfolio, sustained its positive growth. As of 31 March 2015, outstanding consumer loans were up by 3.9% on the back of the growth in auto and salary loans.

The outlook for the Philippine banking industry remains positive, given continued expectations of robust economic demand as consumer and businesses benefit from increased government spending and sustained investment activities.