Strong banks sail through shifting tides and currents

Top Philippine banks remain resilient, forging ahead through shifting tides and currents and showing strong profits and good prospects.

Recent monetary easing by the Bangko Sentral ng Pilipinas (BSP) should help support the banking sector and sustain earnings, keeping the industry’s outlook at overweight.

In October, the country’s biggest non-government-owned banks by assets released third quarter earnings. The results show strength: double-digit profit growth, loans expanding above industry average, and stable asset quality.

BDO Unibank Inc. (BDO) and Metropolitan Bank & Trust Co. (Metrobank) reported net income growth results in line with consensus, while Bank of the Philippine Islands (BPI) exceeded expectations.

Related article: Metrobank posts record income as of September amid robust loan growth

Yet, trends in quarterly net interest margin (NIM) among the three are beginning to diverge.

– BPI maintained elevated NIMs, driven by its focus on consumer lending, though this shift slightly increased its non-performing loan ratio.
– BDO’s NIMs declined, largely due to lower asset yields from its decision to park excess funds in short-term instruments and rising funding costs. Changes to certain accounting formats also pulled NIMs lower. But management noted that the bank has yet to book strong trading gains, leaving more salvo for revenue boost.
– Metrobank experienced narrower NIMs, as higher funding costs emerged from unwinding cross-currency swaps and diversifying funding sources. On balance, robust trading gains helped offset the impact of soft NIMs. Management remains optimistic, projecting stable NIMs through yearend and emphasizing the bank’s strong position to capture loan growth opportunities.

In the near term, BSP’s required reserve ratio (RRR) reduction, which took effect on October 25, will partially cushion the impact of policy rate cuts on NIMs.

Related article: Slow rate cuts and quicker growth lie ahead for Philippines

Lower policy rate rates should also stimulate loan growth, helping banks sustain resilient earnings. The sector outlook remains overweight.

ARIZ MARCELINO is an Equity Research Analyst at Metrobank’s Trust Banking Group. Locally, he covers the banking, consumer, and property sectors. He also tracks offshore markets and global investment themes to support asset allocation strategies. Previously, with the Markets Research Department, he focused on macroeconomic research and analysis. Ariz graduated from New Era University with a degree in Banking and Finance and has passed the CFA Level 1 exam. 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 at Metrobank’s 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.