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UnionBank of the Philippines
- Sector: Financial Services
- Sub Sector: Banks
- Region: Philippines
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Fundamental View
AS OF 11 Mar 2025The bank has historically generated higher returns than peers, but it geared its focus significantly towards the retail segment through acquiring Citi’s Philippine retail portfolio in 2022 and organic growth, which brought retail loans to more than half the total book.
Returns have suffered despite the good boost to core revenues, as asset quality deterioration from the riskier growth direction resulted in high credit costs which we have forewarned. Continued rounds of capital infusions from shareholders have thus been required. The reserve cover is maintained relatively thin.
Business Description
AS OF 11 Mar 2025- UnionBank of the Philippines was incorporated in 1968, and listed on the Philippine Stock Exchange in June 1992. Principal shareholders are Aboitiz Equity Ventures (49.66%), Insular Life (16%), & Social Security System (18%).
- UBP undertook mergers with International Corporate Bank in 1994 and International Exchange Bank in 2006. City Savings Bank (a thrift bank) was purchased in Jan 2013. City Savings received merger approval with PR Savings (a bank engaged in motorcycle, agri-machinery, & teachers' salary loans) in Dec 2018 from the BSP. It acquired the Citi Philippines retail franchise in 2022.
- The loan book is broadly split 40% wholesale loans and 60% retail loans (comprising 33% credit cards, 22% mortgages, 33% salary loans and 12% others including teachers loans, salary loans and motorcycle loans by the thrift bank subsidiary, City Savings Bank, and 3% UnionDigital).
Risk & Catalysts
AS OF 11 Mar 2025Any rating downgrade of the Philippine sovereign or reduction of shareholding by Aboitiz Equity Ventures would negatively impact UBP.
The bank’s aggressive retail expansion has improved the NIM, but negatively impacted overall profitability because of high credit costs (particularly since 2H23) which we have forewarned. We continue to dislike its focus on riskier retail given the already large loan book exposure. It is now focusing on lower risk, shorter term loans at UnionDigital, as well as payroll and credit card loans, but the improvement in credit costs have been slow to come through.
The bank however benefits from good shareholder support; it successfully completed a third stock rights offering of PHP 10 bn in 2Q24 (2023: PHP 12 bn; 2022: PHP 40 bn) to shore up capital. Lower opex from 2Q24 onwards is also aiding the bottomline.
Key Metric
AS OF 11 Mar 2025| PHP mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.50% | 4.60% | 4.80% | 5.50% | 6.00% |
| Reported ROA (Cumulative) | 1.5% | 1.6% | 1.3% | 0.8% | 1.1% |
| Reported ROE (Cumulative) | 11.5% | 11.5% | 9.7% | 5.6% | 6.4% |
| PPP ROA | 2.68% | 2.59% | 2.17% | 2.31% | 3.08% |
| CET1 Ratio | 15.0% | 16.3% | 11.3% | 13.9% | 15.6% |
| Total Equity/Total Assets | 13.6% | 13.5% | 13.6% | 15.3% | 17.1% |
| Gross NPL Ratio | 5.10% | 5.00% | 4.80% | 6.27% | 6.89% |
| Net LDR | 64.3% | 63.1% | 67.4% | 73.8% | 77.3% |
| Liquidity Coverage Ratio | 207% | 272% | 148% | 163% | 250% |
| Net Stable Funding Ratio | 133% | 149% | 124% | 124% | 128% |
CreditSight View Comment
AS OF 13 Mar 2025UBP’s NIM and core revenue generation is strong thanks to its pivot towards higher yielding retail via organic growth and acquiring Citi’s local retail portfolio. However, returns have suffered as the asset quality repercussions which we have forewarned from its aggressive growth pace and riskier retail focus have come through, with elevated credit costs since 2H23. It has slowed loan growth but credit costs have not shown signs of stabilisation. The reserve cover is maintained relatively thin. Continued shareholder support with yet another stock rights offering in 2Q24 has ensured sufficient capital for now. Still, we maintain U/P as it trades tight for its size and risk, given its asset quality issues and weak fundamentals.
Recommendation Reviewed: March 13, 2025
Recommendation Changed: April 17, 2020
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