Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 25 Apr 2024BDO Unibank (BDO) is the largest bank in the Philippines in terms of assets & market share and is rated Baa2(stb)/NR/BBB-(stb).
Given its size and systemic importance, BDO is considered too big to fail and is strongly likely to be supported by its controlling shareholder SM Investments, as well as the Philippine government in times of stress.
BDO is widely viewed as the soundest bank in the country given its strong fundamentals, well-diversified businesses, and good management. Its CET1 ratio is lower than its first-tier peers, BPI and Metrobank, but it is being steadily built up through internal profit generation.
Business Description
AS OF 25 Apr 2024- BDO Unibank was established as Acme Savings Bank in 1968, and was then acquired by SM Investments in 1976. It became a commercial bank in 1994 and a universal bank in 1996.
- BDO was listed in May 2002. SM Investments remains the bank's largest shareholder with a 41% stake.
- BDO has expanded through a series of M&As. Among its key transactions, it merged with Dao Heng Bank Philippines in 2001, Banco Santander Philippines in 2003, UOB Philippines in 2005, Equitable PCI Bank in 2007, GE Money Bank in 2009, Citibank Savings, DB Trust and Real Bank in 2014, One Network Bank in 2015 (the largest rural bank in the Philippines), and RB Pandi's banking business in 2019. It also acquired the insurance business of Generali in the Philippines in 2016.
- BDO has the largest distribution network in the country and is ranked the largest bank in terms of consolidated resources, total assets, loans, deposits and trust funds under management.
- Its loan book is split 52% large corporates, 24% middle market, and 24% consumer at 1Q24. 46% of the consumer book comprises mortgages, 24% are credit cards, 14% are auto loans and the remaining are personal loans and others.
Risk & Catalysts
AS OF 25 Apr 2024Sustaining or further improving returns will be a challenge without the rates tailwind in 2024, but management is confident of achieving that through good volume growth in loans and CASA this year, while maintaining a stable NIM because of its strong deposit franchise. Credit costs are expected to trend down as well; BDO’s asset quality has held up well in spite of high interest rates and inflation. Its large corporates-focused book (52% of total loans) and build up of loss absorption buffers give comfort.
Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would negatively impact BDO’s credit ratings.
Key Metrics
AS OF 25 Apr 2024PHP mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
NIM | 4.36% | 4.05% | 4.14% | 4.65% | 4.63% |
Reported ROA (Cumulative) | 0.9% | 1.2% | 1.5% | 1.7% | 1.7% |
Reported ROE (Cumulative) | 7.6% | 10.4% | 13.0% | 15.2% | 14.3% |
Equity/Assets | 11.6% | 11.7% | 11.3% | 11.5% | 11.6% |
CET1 Ratio | 13.2% | 13.6% | 13.4% | 13.8% | 13.6% |
NPL ratio | 2.7% | 2.8% | 2.0% | 1.9% | 1.9% |
Provisions/Loans | 1.34% | 0.72% | 0.64% | 0.59% | 0.46% |
PPP ROA | 2.3% | 2.1% | 2.3% | 2.7% | 2.4% |
Liquidity Coverage Ratio | 127% | 145% | 141% | 123% | 125% |
Net Stable Funding Ratio | 122% | 124% | 124% | 124% | n/m |
CreditSights View
AS OF 25 Apr 2024BDO is the largest bank in the Philippines. Management is well-regarded, the business is well-diversified and it is the market leader in many of the business lines. Asset quality and liquidity are well-managed. The NIM has peaked but should remain fairly stable, non-interest income is a third of operating income given good fee generation, and overall core profitability is strong. Management expects to sustain the upward trajectory in returns, which will be tricky in absence of rate tailwinds. Asset quality has been resilient despite high interest rates and inflation. The large corporates book and management’s conservative rebuild of the reserve cover back to >180% provide comfort around asset quality risks. Capital is acceptable with the CET1 ratio at 13.6%.
Recommendation Reviewed: April 25, 2024
Recommendation Changed: November 28, 2023