BDO UNIBANK, Inc.’s net profit grew by 2% in the primary quarter, with gains from robust loan growth partly tempered by higher provisioning because it guards against potential risks amid the uncertain global environment because of the Middle East conflict.
The Sy-led bank’s earnings climbed to P20.1 billion in the primary three months from P19.7 billion in the identical period last 12 months, it said in a disclosure to the stock exchange on Friday.
This translated to a return on equity of 12.76, down from 13.77% in the identical period last 12 months. Return on average assets also declined to 1.47% from 1.64%.
“We saw continued growth in our [net interest] income. Although you will notice the primary quarter is a little bit weak, we expect it’s a timing issue. We ought to be within the double-digit trend going into … the remaining of the 12 months. We proceed with our strategic investments, and so they’re now beginning to yield profit for us,” BDO President and Chief Executive Officer Nestor V. Tan said in a briefing following their annual stockholders’ meeting on Friday.
Net interest income increased by 11% to P53 billion in the primary quarter from P47.8 billion a 12 months ago amid growth in its earning assets, with interest expense and interest income each rising by 11% to P77.5 billion and P24.4 billion, respectively.
BDO’s gross loans rose by 16% 12 months on 12 months to P3.77 trillion at end-March from P3.26 trillion amid double-digit growth across all market segments.
Nonperforming loan (NPL) ratio also improved to 1.68% from 1.77%. NPL cover went all the way down to 131.9% from 143.4%.
Mr. Tan said they saw margin pressure despite higher loans because of the central bank’s monetary easing cycle. Net interest margin was at 4.2% within the period, down from 4.31% a 12 months ago.
Non-interest income rose by 6% to P19.8 billion from P18.6 billion.
“Fee income moderated at 4%. An enormous portion of that is the capital markets and investment banking. It has almost dried up in consequence of the [Middle East] conflict. So, no one desires to make big transactions. Nevertheless, trading and income from operations remain strong, and that is already tempered by mark-to-market losses. So, with that, these two income categories would have been higher if not for the most important mark-to-market losses,” Mr. Tan added.
Income from the bank’s insurance operations rose by 27% to P2.1 billion from P1.7 billion, compensating for the slower fee income growth, he said.
Meanwhile, BDO’s operating expenses went up by 6% 12 months on 12 months to P43.4 billion in the primary quarter from P40.9 billion.
Consequently, cost-to-income ratio improved to 58% from 60.1%.
The bank also put aside provisions amounting to P6.1 billion in the course of the period, greater than double the P3 billion a 12 months ago as they preferred to maintain a conservative stance because of faster growth in consumer loans.
Mr. Tan added that the bank made some “preemptive provisioning” for 3 accounts.
On the funding side, total deposits rose by 15% to P4.429 trillion from P3.847 trillion. Of this, P2.906 trillion were low-cost current account, savings account (CASA) deposits, up from P2.704 trillion the prior 12 months.
The bank’s demand, savings, and time deposits grew by 11%, 6%, and 33%, respectively.
BDO’s assets expanded by 17% to P5.715 trillion at end-March from P4.904 trillion.
Total capital was at P645.7 billion, up 9% from P594.9 billion.
BDO’s capital adequacy ratio was 14.43%, down from 15.53% a 12 months ago.
CAUTIOUS OPTIMISM
Mr. Tan said they continue to be optimistic about growth despite increased geopolitical risks that would affect private and non-private spending, adding that they still expect their loans to proceed expanding at a double-digit pace.
“Well, given what we all know now, it’s possible. We’re taking a look at that. Actually, the primary quarter is at 16% growth, in order that’s positive. But we do expect that to normalize,” he said.
“I’ve just been through a regional board meeting where they checked out bi-country consumption and investment patterns. And what they see is analogous to what we see: a brief slowdown after which a pickup or normalization of activity. So, can we see any slowdown relative to COVID? The reply is not any. The truth is, this one is stronger than what it was pre-crisis and really much stronger than COVID.”
Alternatively, delinquencies could increase because of the crisis, particularly in the buyer sector, however the hit to the bank’s asset quality would depend upon how long the conflict lasts, Mr. Tan said.
“We consider that the pressure might be mostly in the buyer sector. And right away, we haven’t seen that yet in our portfolio.”
Despite this, he said they are going to tweak their credit underwriting standards for some consumer lending sectors.
Meanwhile, the bank may gain advantage from higher borrowing costs if the central bank continues its tightening cycle. The Bangko Sentral ng Pilipinas delivered its first rate hike in over two years on Thursday because it desires to contain the buildup in domestic inflation pressures amid the war-driven global oil shock.
“Well, it’s a two-edged sword. Margins will slowly go up, however it’s going to be tempered by competition. But funding costs will even be going up, and there’s a possibility that delinquencies will [go] up. So, we’ll have to have a look at the balance of all three,” Mr. Tan said.
BDO also desires to open 120 recent branches this 12 months.
The bank’s shares dropped by P2.70 or 2.29% to shut at P115 each on Friday. — Aaron Michael C. Sy