Fitch: Merged Philippines banks rated 3

Fitch Ratings said the possible merger of Allied Banking Corp. and Philippine National Bank, both of which are controlled by the Lucio Tan Group, could yield a support rating of 3. That is the same as Philippines National Bank's rating and is premised on the enlarged asset base should the banks merge.

Meanwhile, the merged entity's individual ratings could either be D or D/E, the agency said, depending on the post-merger financial position. Allied Bank currently has individual ratings of D and support rating of 4. Philippines National has an individual rating of D/E and support rating of 3.

Both banks have a weak capital buffer, which may improve thanks to fund raising initiatives in the pipeline, Fitch said. Allied Bank is planning to issue subordinated debt of up to PHP5 billion over 2008, of which PHP3 billion was offered in February 2008. It also plans to convert its $50 million subordinated debt into ordinary shares, which represents around 16% of Allied Bank's equity and 6% of the enlarged entity's pro-forma equity of PHP46 billion at the end of September 2007, the agency said.

The merger, which would create either the fourth or fifth largest bank, is generally viewed to be positive in the long run, Fitch said.

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