By Lee C. Chipongian
The SM Group-led Banco de Oro Unibank (BDO) expects to earn more this year at P38.5 billion compared to actual 2018 net income of P32.7 billion, its president and CEO, Nestor V. Tan said.
In a press conference before the bank’s annual stockholders meeting yesterday Tan said the 17.7 percent year-on-year projected increase is “a slight improvement from 2018.”
BDO yesterday reported a P9.8-billion net income in the first quarter 2019, up 66 percent from same time in 2018 of P5.9 billion, driven by core businesses. Its end-March net interest income was up by 25 percent to P27.7 billion while non-interest income went up by 36 percent to P14.9 billion.
He said all banks are still operating in a high interest rate regime after the central bank raised rates by 175 basis points in 2018 to curb inflation, and he would want the Bangko Sentral ng Pilipinas to issue further cuts to reserve requirement ratio (RRR) this year and keep the interest rates in a “narrow band” easing of 25-50 basis points. These moves should help banks achieve income growth.
“Rates and RRR cuts are normally passed on to consumers so it’s a question of timing,” said Tan. “When rates moved up (in 2018), a lot thought that banks will have a windfall but in reality we suffered more than the windfall.” As for how much RRR reduction is ideal, he said, “I don’t know how much (but) if we want to use that as a starting point for policy, it’s too high (at 18 percent).”
Generally for this year, Tan expects to see interest rates to stabilize, the exchange rate to be stable but also noted that financial liquidity will further tighten. He also said that the industry may see another 12 months pass by before they could participate in a big way in the government’s “Build, Build, Build” infrastructure projects.
For BDO, Tan expects the consumer and middle market-led loan growth will continue but not as much, while deposits will also grow but slower. He also sees stable margins for the bank, steady income fee and “customer flow-driven trading and foreign exchange gains.”
Overall, Tan said there are several positive factors that would ensure profits continue to increase for the banking sector, particularly for BDO which is still the country’s largest lender, such as rebound in consumer demand with an inflation outlook that’s been returned to within the two-four percent target, consumption-boosting election period and an asset quality that is “expected to remain benign” this year both for BDO and the industry.
Tan said in the first three months, they saw what they expected to see which was continued increase in loans amid low-cost funding. But, the bank’s interest expense is moving faster than its interest income. Still, he said on the first quarter high income – “we’re firing on all cylinders despite higher costs due to higher interest rates.”
Tan said the risks this year includes the trade war, the uncertainty from the mid-term election and the high interest rates. “There is uncertainty as a result of election spending (because) investors tend to pull back. And, right now, we are in a very high interest rate environment and we haven’t seen its impact yet but we may see a slowdown if it continues to be at these levels. I think interest rates will be a factor if it moves frequently,” he said.