By Melissa Luz T. Lopez
Senior Reporter
HUGE LOAN EXPOSURES to troubled Multiply Philippines (MP) could pull down credit ratings for the five Philippine banks concerned as its problems would mean narrower profits for absorbing possible defaults, Moody’s Investors Service said in a November 16 note.
The debt watcher said credit risks from the Indonesian E-commerce and social networking site's bankruptcy will drive credit costs higher, with reports pegging the amount at $600 million. Settlement of the unpaid debts was left hanging after Multiply filed for corporate rehabilitation last week.
Moody’s analysts said this does not bode well for the ratings of Rizal Commercial Banking Corp. (RCBC), state-owned Land Bank of the Philippines (LANDBANK), Metropolitan Bank & Trust Co. (Metrobank), Bank of the Philippine Islands (BPI) and BDO Unibank, Inc. in their view.
“The exposures are credit negative for the five Philippine banks because they will need to incur additional credit charges related to MPI, which will reduce their profit,” Moody’s analysts Simon Chen and Shirley Zeng said in a credit outlook.
Moody’s rates these lenders at “Baa2,” which is one notch above minimum investment grade. This matches the rating given to the Philippine government and allows them to raise funding from foreign investors at cheaper cost.
Multiply has maintained social networking since 2004 and had over 18 million users. Issues have also hounded the websites since it started operations.
Multiply owes $300 million to RCBC, $80 million to LANDBANK, $72 million to Metrobank, and $60 million each to BDO and BPI.
“Assuming the worst-case scenario in which the banks make provisions for their bad exposures in full because of the unsecured nature of the facilities extended, we expect that credit costs as a percentage of the banks’ pre-provision income will increase to between 20 and 140 basis points (bp), from six to 26 basis points based on their September 2012 financials,” the report read.
“The biggest negative effect on profitability will be at RCBC.”
Moody’s analysts said they expect the bank’s bad loans ratio to nearly double to 4.3% of the total portfolio from 2.2% in 2012 due to its huge Multiply exposure.
The increase in nonperforming loan ratios of the other four banks “will be smaller” at 15-50 bp, it added.
At the same time, the debt watcher said the banks involved can still weather this challenge, as they have more than enough capital buffers to keep a solid footing.
“Although bank profit will be dampened by the additional credit costs, we expect that the affected banks’ loss-absorbing buffers to remain robust,” Moody’s said, adding that “[f]or RCBC, our assumed credit losses for the worst-case scenario exceed the bank’s pre-provision income and will reduce its capital ratio by around 50 basis points.”
BSP Governor Amado Tetangco, Jr. said on Friday last week that Multiply’s outstanding debt is “negligible” compared to total industry loans. Latest central bank data showed that this represents 0.24% of total loans and 2.49% of foreign currency loans.
It went close down last May 6, 2013, and ceased all business operations on May 31, 2013, with the official online channels for the site, had been removed along with all their content, including its YouTube, Tumblr, Twitter, Facebook, and Instagram accounts, after years of financial and managerial turmoil and following a failed bid to reinvent itself from being a social networking site to a vibrant e-commerce destination in Southeast Asia.
At that time, the website's social networking portion had a network of 18 million users. Liquidity problems, however, affected earnings. Sales declined from their peak of P20 billion in 2013 to just about P5 billion in 2017.
After May 6, the rest of the month will be used to ensure that all accounts are settled and merchants get full payment for their transactions, it said.
Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to the businesses of its users.
“Multiply will ensure that you receive all funds you earned on the platform no later than May 31, 2013. We will close the actual marketplace sooner, on May 6, 2013, to ensure that all orders have sufficient time to complete and be delivered to your customers before the end of the month,” it said.
In December 2012, Multiply stopped its social networking service to focus on e-commerce, targeting the 350 million consumers in Indonesia and the Philippines.
The Labour Department said earlier that around 3,000 former Multiply staff had applied for compensation through the Protection of Wages on Insolvency Fund, a safety net for employees affected by business closures.
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Vandalism of a Wikipedia article (Multiply (website). The bottom image shows vandalism done. The top image compares the edit shown below. |
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