The country’s largest bank, BDO Unibank, may join the race for the Philippine retail banking assets of Citibank, a move that can cement its local market leadership. “It’s a good business franchise that any bank will be interested to look at, so it’s not something that you can ignore,” BDO president Nestor Tan said in response to a stockholder’s query during the firm’s annual meeting on Friday.
“However, we have to be cognizant that because of our size, the overlaps and the stickiness of the business for sale may be a factor.”
Expressed interest
The American banking giant has about one million credit card customers and about 50,000 retail banking clients in the Philippines. Its retail clients are mostly from the affluent segment. Its credit card franchise ranks among the top three in terms of credit card spending share.
Ayala-led Bank of the Philippine Islands likewise expressed interest to bid for Citibank’s local assets as the foreign bank seeks to exit its consumer franchises in 13 jurisdictions, including the Philippines.
BDO’s three-month net profit rose by 19 percent year-on-year to P10.4 billion as improved trading and foreign exchange gains, insurance premiums and resilient fee-based businesses made up for the slump in net interest income.
Due to weak demand for loans, net interest income declined by 3 percent to P32 billion in the first quarter, reflecting a 1-percent drop in the loan book to P2.2 trillion.
The bank set aside an additional P2.9 billion in provisions, 30-percent higher than the buffer last year, even as bad loans remained in line with expectations.
Better than anticipated
In his report to stockholders, Tan said BDO’s nonperforming loan (NPL) ratio would likely peak in the second quarter of this year to 3 percent, versus the industry’s 4-5 percent, but that it was trending better than anticipated.
In the first quarter, the bank’s NPL ratio stood at 2.81 percent. With the bank’s loan loss provisioning measures, NPL coverage is now at 107.1 percent, which according to Tan was more than adequate to cover potential losses.
“Having said that, the challenge is not in the NPL ratio, but in how to remedy the situation once a client gets into trouble. We need to be able to help and work it out with them,” Tan said.
On the funding side, BDO’s deposits rose by 2 percent to P2.6 trillion, driven by an 11-percent expansion in low-cost deposits, now constituting 83 percent of total deposits, the highest share so far in the bank’s history.
Tan told shareholders that 2021 would remain a “challenging” period, with lending activities expected to remain muted, while margins coming under greater pressure from low interest rates.
However, he sees the wealth management business continuing a steady growth, while the life insurance and other fee-based businesses were seen to recover.
Overall, Tan said BDO would continue to prioritize protecting its balance sheet. INQ