Aboitiz-led Union Bank of the Philippines booked a net profit of P1.54 billion in the first quarter, 61 percent lower than the level last year when large trading gains buoyed the local banking industry.
Based on a regulatory filing, Union Bank grew its net interest income by 25 percent year-on-year to P2.56 billion in the first three months.
This was supported by a 45.2-percent jump in its loan book to P142.5 billion during the quarter year-on-year.
Non-interest income, however, fell by 66 percent year-on-year in the first three months to P1.81 billion as net trading gains shrank to P421.95 million versus last year’s P3.37 billion.
“That (decline) is expected because the trading market has been so difficult in the last six months,” Union Bank president Victor Valdepenas said in an interview. “Treasury continues to make money but it’s not as strong as the exceptional earnings in the first quarter of 2013.”
But for Union Bank, Valdepenas said other businesses had improved, such as consumer finance.
He noted the robust performance of Cebu-based subsidiary City Savings Bank, which contributed about P400 million in net profit in the first quarter.
The high growth in lending activities compensated for the reduced earnings in treasury, the banker said.
Fee-based income also contributed to Union Bank’s profit as this segment generated P881.56 million in revenues, surging by 73 percent year-on-year.
The increase in the bank’s loan book was supported by a 54.52-percent year-on-year rise in deposits to P328.94 billion in the first quarter.
Overall, Union Bank grew its balance sheet by 30.56 percent to P411.43 billion as of end-March compared to a year ago.
Asked about his expectations for the rest of the year, Valdepenas said earnings would likely remain “subdued” compared to the previous year.
“Unless volatility returns to the market, there could be an opportunity for trading but as of now it seems that the exceptional trading gains of the banking system that were realized in the first and second quarters of last year won’t be repeated,” said Valdepenas, a treasury veteran. “Part of the reason is that (tapering of) US Federal Reserve’s QE (quantitative easing) is beginning to reflect in terms of bond prices.”
The US central bank recently started reducing the monthly bond buying operations that had boosted valuations of emerging market assets in the last few years.
“But the good thing about it is we now have a more diversified earnings base that will tend to carry us ahead. We expect more robust growth particularly in area of mortgages, auto and also with respect to loans of our subsidiary City Savings,” he said.
On net interest margins, he said these were stabilizing on a group-wide basis but for the parent bank alone, margins continued to be under pressure as asset yields were declining faster than the reduction in cost of funding.
In the first quarter, he estimated that asset yields had gone down by less than 100 basis points while cost of funding had declined by 60 basis points, resulting in a net margin compression of 40 basis points. “But moving forward, we expect very significant improvement in margins in the next nine months. That deterioration will reverse itself,” he said.