BDO on track to meet 2016 profit goal

The country’s biggest lender BDO Unibank has achieved in the first nine months 74.2 percent of its record-high net profit goal of P26 billion for the full year.

In the first nine months, BDO grew its profit by 10 percent to P19.3 billion year-on-year as higher earnings from core businesses made up for the slack in treasury gains.

“The bank’s core lending, deposit-taking and fee-based businesses delivered solid results during the period, offsetting a normalized contribution from treasury activities,” BDO said in a disclosure to the Philippine Stock Exchange Wednesday.

BDO, led by the Sy family, grew its net interest income by 16 percent to P48.4 billion alongside the growth in loan volume.

Customer loan portfolio expanded by 15 percent to P1.4 trillion on broad-based growth across all market segments.

Total deposits rose by 14 percent to P1.8 trillion, supported by the 21-percent increase in low-cost deposits which now account for 70 percent of total deposits.

Fee-based income was up by 15 percent to P16 billion, while trading and foreign exchange income normalized at P4.5 billion, or a decline of 29 percent year-on-year.

Operating expenses increased by 29 percent to P52.8 billion, reflecting the consolidation of One Network Bank (ONB) and BDO Life Insurance operations. On a comparable basis net of these new businesses, operating expenses would have grown by only 12 percent.

The bank set aside P2.6 billion in provisions even as asset quality held firm. Gross non-performing loan (NPL) ratio was steady at 1.3 percent of total loans while NPL cover remained high at 143 percent.

BDO’s capital base stood at P215.4 billion, with core or tier1 and capital adequacy ratio (CAR) both remaining above the current regulatory minimum under the Basel 3 framework.

Basel 3 framework requires a complex package of reforms designed to improve the ability of banks to absorb losses. It also extends the coverage of financial risks and requires stronger firewall to protect banks especially during periods of stress.

BDO issued last month $300 million in fixed rate senior notes at 2.63 percent, the lowest ever coupon rate for any US dollar denominated bond for a Philippine issuer.

BDO also plans to raise P60 billion in additional core capital through a stock rights offer. The fresh capital aims to support its medium-term growth goals amid the country’s favorable macroeconomic prospects, and provide a  buffer over higher capital requirements with the forthcoming imposition of the domestic systemically important bank (DSIB) surcharge.

The Bangko Sentral ng Pilipinas has classified banks depending on the extent of their systemic importance using pre-defined indicators for size, interconnectedness, substitutability and market reliance as a financial market infrastructure.

DSIBs like BDO are characterized as banks “whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.”  These banks are required to maintain additional core or common equity tier 1 of between 150 and 250 basis points of risk-weighted assets in a staggered schedule beginning January 2017 until fully in place by January 2019.