Worries over Metrobank's capital condition misplaced, says analyst

But on what grounds?

According to Maybank Kim Eng, the share price of Metrobank (MBT) has dropped 4% in the last three months and underperformed the benchmark PSEi by 8bps. It is also lagging peers who all posted share price improvements ranging from 0.2% to 20%.

Here's more from Maybank Kim Eng:

We believe investors are concerned with MBTs’ capital condition in light of the stringent capital requirements of Basel 3. However, we think the worries are misplaced based on an estimated Tier 1 ratio of 15.54% in 2013, well above the 10% proposed minimum requirement.

GTCAP aims to acquire TMP. As discussed in our company report (Unlocking the value of Toyota stake, 12 July 2012), parent GT Capital Holdings Inc (GTCAP – Not rated) aims to acquire additional interests in current investee companies. We estimate the divestment of MBT’s 30% stake in Toyota Motor Philippines Inc (TMP) to GTCAP could result in a one-off gain of about PHP7.5b or PHP3.57/sh.

This could add almost 100bps to MBT’s 2013 Tier 1 ratio or about 14bps for every PHP1b in additional capital. MBT’s 49% indirect stake in Global Business Power Corp (GBP) could also provide a gain of around PHP4.3b, potentially adding a further 60bps to MBT’s Tier 1 ratio.

Derecognizing hybrid - not an issue. MBT’s existing PHP6.3b worth of hybrid capital will no longer meet the Basel 3 criteria as it is a non-cumulative perpetual debt with maturity date and step-up arrangement. This suggests a deduction of about 90bps.

Consolidating the potential gains from TMP and GBP and netting out hybrid capital, we still end up with a net addition of 77bps to MBT’s Tier 1 ratio. In the worst case that divestment plans are delayed and higher capital charges are imposed on TMP and GBP (assumption: 100% based on carrying value), our calculation shows a 235-bp decline in Tier 1 capital to 13.2%, still above the 10% proposed minimum requirement under Basel 3.