BDO Q1 profit climbs to P20.1 billion

BDO UNIBANK, Inc.’s net profit grew by 2% in the first quarter, with gains from robust loan growth partly tempered by higher provisioning as it guards against potential risks amid the uncertain global environment due to the Middle East conflict.

The Sy-led bank’s earnings climbed to P20.1 billion in the first three months from P19.7 billion in the same period last year, it said in a disclosure to the stock exchange on Friday.

This translated to a return on equity of 12.76, down from 13.77% in the same period last year. Return on average assets also declined to 1.47% from 1.64%.

“We saw continued growth in our [net interest] income. Although you will see the first quarter is a little weak, we think it’s a timing issue. We should be in the double-digit trend going into … the rest of the year. We continue with our strategic investments, and they’re now starting to yield benefit for us,” BDO President and Chief Executive Officer Nestor V. Tan said in a briefing following their annual stockholders’ meeting on Friday.

Net interest income increased by 11% to P53 billion in the first quarter from P47.8 billion a year ago amid growth in its earning assets, with interest expense and interest income both rising by 11% to P77.5 billion and P24.4 billion, respectively.

BDO’s gross loans rose by 16% year on year to P3.77 trillion at end-March from P3.26 trillion amid double-digit growth across all market segments.

Nonperforming loan (NPL) ratio also improved to 1.68% from 1.77%. NPL cover went down to 131.9% from 143.4%.

Mr. Tan said they saw margin pressure despite higher loans due to the central bank’s monetary easing cycle. Net interest margin was at 4.2% in the period, down from 4.31% a year ago.

Non-interest income rose by 6% to P19.8 billion from P18.6 billion.

“Fee income moderated at 4%. A big portion of this is the capital markets and investment banking. It has almost dried up as a result of the [Middle East] conflict. So, nobody wants to make big transactions. However, trading and income from operations remain strong, and this is already tempered by mark-to-market losses. So, with that, these two income categories would have been higher if not for the major mark-to-market losses,” Mr. Tan added.

Income from the bank’s insurance operations rose by 27% to P2.1 billion from P1.7 billion, compensating for the slower fee income growth, he said.

Meanwhile, BDO’s operating expenses went up by 6% year on year to P43.4 billion in the first quarter from P40.9 billion.

As a result, cost-to-income ratio improved to 58% from 60.1%.

The bank also set aside provisions amounting to P6.1 billion during the period, more than double the P3 billion a year ago as they preferred to keep a conservative stance due to faster growth in consumer loans.

Mr. Tan added that the bank made some “preemptive provisioning” for three accounts.

On the funding side, total deposits rose by 15% to P4.429 trillion from P3.847 trillion. Of this, P2.906 trillion were low-cost current account, savings account (CASA) deposits, up from P2.704 trillion the prior year.

The bank’s demand, savings, and time deposits grew by 11%, 6%, and 33%, respectively.

BDO’s assets expanded by 17% to P5.715 trillion at end-March from P4.904 trillion.

Total capital was at P645.7 billion, up 9% from P594.9 billion.

BDO’s capital adequacy ratio was 14.43%, down from 15.53% a year ago.

CAUTIOUS OPTIMISM
Mr. Tan said they remain optimistic about growth despite increased geopolitical risks that could affect public and private spending, adding that they still expect their loans to continue expanding at a double-digit pace.

“Well, given what we know now, it’s possible. We’re looking at that. Actually, the first quarter is at 16% growth, so that’s positive. But we do expect that to normalize,” he said.

“I’ve just been through a regional board meeting where they looked at bi-country consumption and investment patterns. And what they see is similar to what we see: a temporary slowdown and then a pickup or normalization of activity. So, do we see any slowdown relative to COVID? The answer is no. In fact, this one is stronger than what it was pre-crisis and very much stronger than COVID.”

On the other hand, delinquencies could increase due to the crisis, particularly in the consumer sector, but the hit to the bank’s asset quality would depend on how long the conflict lasts, Mr. Tan said.

“We believe that the pressure will be mostly in the consumer sector. And right now, we haven’t seen that yet in our portfolio.”

Despite this, he said they will tweak their credit underwriting standards for some consumer lending sectors.

Meanwhile, the bank could benefit from higher borrowing costs if the central bank continues its tightening cycle. The Bangko Sentral ng Pilipinas delivered its first rate hike in over two years on Thursday as it wants to contain the buildup in domestic inflation pressures amid the war-driven global oil shock.

“Well, it’s a two-edged sword. Margins will slowly go up, but it’s going to be tempered by competition. But funding costs will also be going up, and there’s a possibility that delinquencies will [go] up. So, we’ll have to look at the balance of all three,” Mr. Tan said.

BDO also wants to open 120 new branches this year.

The bank’s shares dropped by P2.70 or 2.29% to close at P115 each on Friday. — Aaron Michael C. Sy