PHL banks’ earnings to remain strong this year

Philippine banks’ earnings are expected to stay robust this semester with the Bangko Sentral ng Pilipinas (BSP) kicking off its easing cycle last month, but profit growth may moderate as their margins level off, market analysts said.

Most listed banks’ earnings ended at record levels in the first half of the year and still have room to grow as their net interest margins (NIM) remain high on the back of elevated borrowing rates and low funding costs, First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.

“The local banking industry’s second-quarter performance showed resilience, with the biggest gainers being BDO Unibank, Inc., Bank of the Philippine Islands (BPI), and Metropolitan Bank & Trust Co. (Metrobank). These banks benefited from strong loan growth, improved NIMs, and robust fee-based income,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

BDO saw its net profit climb by 53.18% to PHP 18.72 billion in the second quarter amid higher net interest earnings. This brought its attributable net income for the first half to PHP 35.25 billion, 11.21% higher year on year.

Meanwhile, BPI’s net earnings grew by 17.5% year on year to PHP 15.3 billion in the second quarter on the back of strong revenue growth, bringing its first-half net profit to a record PHP 30.6 billion, up by 21.5% from the year-ago level.

Lastly, Metrobank booked a net income of PHP 11.61 billion last quarter, up 11.44% year on year, on higher net interest earnings amid an expanded loan book and elevated rates. This brought its net profit for the first semester to a record PHP 23.61 billion, rising by 12.95% from the year prior.

Latest data from the central bank showed that the Philippine banking system’s combined net income stood at P190.26 billion in the first half, rising by 4.1% from P182.76 billion a year prior.

Analysts said the BSP’s move to begin its monetary easing cycle could spur lending activity, which would boost Philippine banks, but also cause their margins to narrow.

The BSP’s policy-setting Monetary Board on Aug. 15 cut its policy rate by 25 basis points (bps) to 6.25% from a near 17-year high of 6.5%, marking its first easing move in nearly four years.

BSP Governor Eli M. Remolona, Jr. has said they could cut rates by another 25 bps within the year. The Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19.

“Net interest margins are showing signs of plateauing, which was expected. We observed a slight uptick in nonperforming loans, which was more evident in second-tier banks that are focused on high-yield consumer loans. We expect the rest of the year to be more of the same,” AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said in a Viber message. 

Bank margins may continue to erode in the coming months as interest rates decline further, he said.

“Some banks may have been more aggressive in locking in high rates, which may delay this margin erosion, but generally we expect banks to experience some pain before it gets better for them. Eventually, lower margins will be offset by rising loan volumes as lower rates entice more borrowers,” Mr. Garcia added.

“For the rest of the year, continued solid performance is expected, but there’s a good chance that the pace may moderate due to rising competition for deposits and potential loan quality concerns. The recent rate cut, and the possibility of more, should support loan demand but may compress NIMs,” Mr. Limlingan added.

For her part, Ms. Ulang said the lower cost of credit will boost borrowings and investments.

“Banks will push loan volume as the economy grows, with ample opportunities in infrastructure, manufacturing and funding for capital expenditures,” she added. — Aaron Michael C. Sy