Analysts: Philippine banks to sustain profits in Q4

By Aaron Michael C. Sy, Reporter

BANKS are expected to sustaining their earnings growth in the fourth quarter as loan demand is spurred by year-end spending and after the central bank cut the reserve requirement ratio (RRR).

“For the fourth quarter, we’re hoping to see sustained momentum in loan growth and perhaps some improvement in net interest margins following the reduction in RRR last October,” Charmaine Co, an equity research analyst at COL Financial Group, Inc., said in a Viber message.

The Bangko Sentral ng Pilipinas (BSP) last month cut the reserve requirements for universal and commercial banks and nonbank financial institutions by 250 basis points (bps) to 7%, effective on Oct. 25.

It also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders was cut by 100 bps to 1%. Rural and cooperative banks’ RRR likewise fell by 100 bps to zero.

“For the fourth quarter, BSP rate cuts may pressure margins, but this could be offset by lower funding costs and improved loan demand, especially from corporates and small businesses,” Luis A. Limlingan, head of sales at Regina Capital Development Corp., said in a Viber message. “The holiday season and remittance inflows are also expected to boost consumer lending and transaction volumes.”

The central bank has cut interest rates by 50 bps since it started its easing cycle in August, bringing its key interest rate to 6%.

Cristina S. Ulang, head of research at First Metro Investment Corp., said she expects banks to continue their strong earnings growth as loan spreads remain wide and would be boosted by the RRR cut.

She added that the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) law could spur Investments and boost Philippine companies’ capital spending.

President Ferdinand R. Marcos, Jr. last week signed into law the CREATE MORE bill, which further reduces the corporate income tax to 20% from 25% for registered business enterprises.

It also allows these companies to take a 100% deduction on power expenses in a taxable year, up from 50% allowed by the Tax Code.

In the first nine months of the year, bank earnings were driven by continued loan growth, Ms. Ulang said in a Viber message.

She said Bank of the Philippine Islands (BPI) had the fastest income growth, while BDO Unibank, Inc. had the biggest nominal income during the period.

In the third quarter, BDO’s net income grew 13.26% year on year to P21.18 billion, driven by the continued growth in its core businesses. This brought the lender’s nine-month income to P60.62 billion, climbing 12.47% from a year ago.

Meanwhile, BPI’s net income rose 29.4% to P17.4 billion in the third quarter as revenues increased. This brought its nine-month earnings to P48 billion, 24.3% higher than a year earlier and driven by robust revenue growth and sustained positive operating leverage.

“In the third quarter, most banks’ results were either above or in line with our estimates,” Ms. Co said. “Outperformances were characterized by stronger-than-expected revenues from better lending income in addition to some significant trading gains.”

“The Philippine banking sector showed mixed performance in the third quarter. Banks like BDO and BPI stood out due to strong loan growth, higher fee-based revenues, and controlled nonperforming loans, while Metropolitan Bank & Trust Co. (Metrobank) posted steady but slower growth,” Mr. Limlingan said.

Metrobank’s net income rose 11.35% to P12.124 billion in the third quarter amid higher revenues as it booked growth in both interest and noninterest earnings. This brought its nine-month net income to a record P35.729 billion, up 12.4% year on year.