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Banco de Oro expects record 2016 profits

But lower trading gains crimp Q1 numbers
/ 12:30 AM April 23, 2016

The country’s leading lender Banco de Oro Unibank sees net profit this year ending at a record-high P26 billion, up by 4 percent from last year, on the back of a double-digit growth in earnings from core lending activities.

The bank has attained 21.1 percent of this full-year profit guidance in the first three months. BDO’s first quarter net profit fell by 11 percent year-on-year to P5.5 billion due to lower treasury earnings, BDO president Nestor Tan said in a press briefing on Friday.

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BDO’s three-month net profit was attributed to core lending, deposit-taking and fee-generating businesses. Net interest income went up by 17 percent to P15.5 billion supported by the 15 percent jump in customer loans to P1.3 trillion.

On the funding side, BDO reported a 14 percent growth in deposits to P1.7 trillion in the first quarter, driven by the 23 percent increase in low-cost deposits.

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Fee-based income from payments, transaction banking and asset management services increased by 11 percent to P4.8 billion. However, trading and foreign exchange gains were lower at P1.5 billion versus P3.4 billion in the comparative period in 2015 due to less favorable market conditions this year.

In 2015, BDO’s net profit rose by 10 percent to P25 billion.

“We expect the positive outlook to continue to 2016 although I would say that we’re a little bit cautious,” Tan said.

On the positive side, he said the twin engines of the economy continued to grow—business process outsourcing and remittances while provincial areas were posting rapid growth due to overseas remittances. “So we see rapid urbanization outside the NCR (National Capital Region) and we are growing our branch network outside NCR,” Tan said.

BDO, which already has one of the largest distribution networks with more than 1,000 branches nationwide, expects to open 50 to 100 new branches this year.

For 2016, Tan said the projected P26 billion net profit guidance would be equivalent to around 12.5 to 13 percent return on equity. “The driver continues to be net interest income, primarily from loan growth and growth in low-cost deposits,” Tan said.

Net interest income is projected to rise by 18 percent while non-interest income is seen to decline by 3 percent this year.  BDO expects its loan volume to increase by mid-teen levels this year.

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Tan said the massive trading gains seen in 2012 and 2013 won’t likely be replicated this year as the bank had been unloading long-dated securities in anticipation of an uptick in interest rates.  BDO has thus assumed that securities and foreign exchange trading gains would slide by 41 percent this year.

Fee-based earnings from payments, transaction banking and asset management services are seen to grow by 10 percent this year.

“So in terms of net income trend, it will continue to grow but it will be stabilizing given the interest rate environment,” Tan said.

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