The net profit of BDO UNIBANK, Inc. grew 2% in the first quarter, with gains from strong loan growth partly offset by higher supply as it hedged potential risks amid an uncertain global environment due to the Middle East conflict.
Sy-led Bank’s earnings rose to P20.1 billion in the first three months from P19.7 billion in the same period last year, it said in a stock exchange disclosure on Friday.
This translates into a return on equity of 12.76%, down from 13.77% in the same period last year. Return on equity also fell to 1.47% from 1.64%.
“We have seen continuous growth in our life [net interest] net worth. Although you will see the first quarter a little weak, we think it is a timing issue. We should be on a double-digit trend towards … for the rest of the year. We continue with our strategic investments, and now they are starting to bring us profits,” said BDO President and Chief Executive Officer Nestor V. Tan in a press conference following their annual shareholders’ meeting on Friday.
Net interest increased 11% to P53 billion in the first quarter from P47.8 billion a year ago amid growth in earning assets, with interest expense and interest income both rising 11% to P77.5 billion and P24.4 billion, respectively.
BDO’s total loans rose 16% year-on-year to P3.77 trillion at the end of March from P3.26 trillion amid double-digit growth in all market segments.
The non-performing loan (NPL) ratio also improved to 1.68% from 1.77%. NPL coverage decreased to 131.9% from 143.4%.
Mr. Tan said they have seen margin pressure despite high lending due to the tightening of the central bank’s funding cycle. Gross margin was 4.2% during the period, down from 4.31% a year earlier.
Non-interest income increased 6% to P19.8 billion from P18.6 billion.
“Income is about 4%. A big part of this is money markets and investment banking. [Middle East] conflict. Therefore, no one wants to make a big transaction. However, trading and operating income remain strong, and this has already reduced market-to-market losses. So, with that, these two income categories would have been higher if it wasn’t for the huge mark-to-market losses,” added Mr. Tan.
The bank’s insurance income increased by 27% to P2.1 billion from P1.7 billion, offset by a slight increase in income, he said.
Meanwhile, BDO’s operating expenses rose 6% year-on-year to P43.4 billion in the first quarter from P40.9 billion.
As a result, the cost-to-income ratio improved to 58% from 60.1%.
The bank also set aside provisions amounting to P6.1 billion during this period, more than double the P3 billion last year as it preferred to maintain a stable position due to the rapid growth of consumer loans.
Mr. Tan added that the bank had made “initial arrangements” for the three accounts.
On the financial side, total deposits increased by 15% to P4.429 trillion from P3.847 trillion. Of this, P2.906 trillion was low-cost current account, savings account (CASA) deposits, up from P2.704 trillion last year.
Bank demand, savings, and bank deposits grew by 11%, 6%, and 33% respectively.
BDO’s assets grew 17% to P5.715 trillion at the end of March from P4.904 trillion.
Total capital was P645.7 billion, up 9% from P594.9 billion.
BDO’s capital adequacy ratio was 14.43%, down from 15.53% last year.
CAUTIOUS OPTIONS
Mr. Tan said they are still optimistic about growth despite the increasing geopolitical risks that may affect public and private spending, adding that they still expect their loans to continue growing at a double-digit rate.
“Yes, as we know now, it is possible. We are looking at that. Actually, the first quarter grew by 16%, so that is good. But we expect that to happen,” he said.
“I just had a regional board meeting where they were looking at bilateral consumption and investment patterns. And what they’re seeing is the same as what we’re seeing: a temporary slowdown and then a pickup or normalization of activity. So, are we seeing any slowdown in the slowdown related to COVID? The answer is no. In fact, this one is stronger than it was before and much stronger than COVID.”
On the other hand, crime may increase due to the crisis, especially in the consumer sector, but the impact on the quality of the bank’s assets will depend on how long the conflict lasts, said Mr. Tan.
“We believe the pressure is going to be in the consumer sector. And right now, we haven’t seen that in our portfolio.”
Apart from this, he said they will adjust their credit writing standards in other consumer lending sectors.
Meanwhile, the bank could benefit from higher borrowing costs if the central bank continues its tightening. The Bangko Sentral ng Pilipinas unveiled its first rate cut in two years on Thursday as it seeks to contain the build-up of domestic inflationary pressures amid a global oil shock caused by the war.
“Well, it’s a double-edged sword. Margins will go up a little bit, but competition will be reduced. But subsidy costs will go up, and it’s likely that the [go] up. Therefore, we will have to look at the balance of the three,” said Mr. Tan.
BDO also wants to open 120 new branches this year.
The bank’s shares fell by P2.70 or 2.29% to close at P115 each on Friday. – Aaron Michael C. Sy
