Sector Outlook: Big banks show resilience amid anticipated rate cuts

The first half of 2024 saw robust financial performance from the Philippines’ largest banks – BDO Unibank (BDO), Bank of the Philippine Islands (BPI), and Metropolitan Bank & Trust Company (Metrobank).

All three institutions reported higher net income and maintained elevated net interest margins (NIMs). BDO’s net income grew by 12% year-on-year to PHP 39.4 billion, BPI’s increased by 22% to PHP 30.6 billion, and Metrobank’s rose by 13% to PHP 23.6 billion.

However, despite these strong results, bank management teams are adopting a conservative stance on NIM expansion for the remainder of the year, primarily due to anticipated monetary easing, with markets expecting the first interest rate cut this month.

In response to the changing economic landscape, these banks have strategically shifted towards growing the high-yielding portions of their loan books, particularly in the consumer segment.

This move aims to maintain favorable earnings and mitigate potential NIM compression. While this strategy has led to a slight uptick in non-performing loan (NPL) ratios, overall asset quality remains sound with adequate NPL coverage.

Looking ahead, the big three banks are expected to continue posting robust earnings as the anticipated accommodative interest rate environment may lead to lower funding costs and increased loan demand. However, investors’ attention may begin to shift towards other emerging sectors that are better positioned to benefit from a less restrictive interest rate environment. In light of these developments, the rating for banks have been updated to slight overweight.

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ARIZ MARCELINO is an Equity Research Analyst in the Investment Services Division of Metrobank Trust Banking Group. His local market coverage includes banks, consumer, and properties. Additionally, he monitors various sectors and investment themes in the offshore space. Previously, he was with the Markets Research Department, focusing on macroeconomic research and sector analysis. Ariz graduated from New Era University with a degree in Banking and Finance and has cleared the CFA Level 1 exam. He is a certified Financial Modelling and Valuation Analyst and a UITF Sales Person. Outside of work, he unwinds by watching popular sitcoms and anime series while enjoying a cup of hot matcha latte.

GERMAN DE LA PAZ III, CFA serves as an Equity Research Lead in the Investment Services Division of Metrobank Trust Banking Group. His coverage includes gaming, telcos, conglomerates, and utilities, as well as select offshore markets. Prior to joining the bank, he spent 9 years at Abacus Securities, starting as a Junior Investment Analyst and working his way up to Senior Investment Analyst. German holds a Bachelor’s degree in Humanities and a master’s degree in Industrial Economics from the University of Asia and the Pacific. Recently, he obtained his CFA charter and is currently pursuing additional industry certifications. In his free time, German enjoys playing sports, particularly basketball, and has a penchant for reading fiction books, watching suspenseful movies, and listening to music.

SECTOR OUTLOOK

Resilient earnings to keep investors' mood in check; asset quality remains benign

Earnings will continue to grow for banks. The banks’ managers, however, remain conservative owing to present economic conditions.

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