PNB’s credit loss buffer sends LTG income plunging by 63%

Credit losses incurred by its banking arm bludgeoned the second quarter bottom line of tycoon Lucio Tan-led conglomerate LT Group Inc. (LTG), but these were partly offset by higher earnings contributed by its tobacco and liquor businesses.

LTG reported on Wednesday a first semester net income of P3.73 billion, 63-percent lower year-on-year. Coming from a net profit of P6.5 billion booked in the first three months of this year, this implied a net loss of P2.76 billion incurred in the second quarter.

Banking arm Philippine National Bank (PNB) posted a second quarter net income of P20.3 billion, dwarfing the P52.6-million net income seen in the same period last year. However, this included a P33.6-billion extraordinary gain on loss of control of a subsidiary, representing the increase in fair market values of three prime real estate properties spun off for real estate arm PNB Holdings Corp. in exchange for shares.

For the six-month period, PNB recorded a net income of P22.1 billion, nearly 16 times higher than the P1.4-billion net income seen in the same period last year.

At the consolidated LTG level, however, PNB’s extraordinary gains were not recognized. Together with higher provisioning for credit losses, PNB instead brought P6.46 billion in net losses to LTG.

‘Proactive approach’

Citing a “proactive approach to address potential delinquencies from the protracted impact of the pandemic,” PNB booked additional impairment provisions of P16.9 billion during the second quarter, bringing the year-to-date provisions to P19 billion, higher than the P5.08-billion buffer set aside in the same period last year.

PNB’s total provisioning expense for the six-month period reached P19 billion compared to the P8.43 billion worth of impairment recognized in the same period last year. With this, the bank has now set aside 60 centavos for every P1 worth of bad loans compared to the buffer of 43 centavos per peso of bad loan at end-2020.

On the other hand, PNB’s net interest income, trading and foreign exchange gains declined year-on-year during the first semester, while the fee-based business bucked the earnings downturn.

Higher earnings

The tobacco business, meanwhile, posted a six-month net income of P9.01 billion, 10-percent higher year-on-year despite a 9-percent drop in sales volume and escalating activities from illicit competitors.

Liquor arm Tanduay Distillery also reported an 11-percent year-on-year growth to P605 million, largely due to the 13-percent increase in the volume of liquor sales alongside a 55-percent growth in bioethanol sales.

Beer brewery Asia Brewery also contributed a much higher six-month net income of P343 million compared to just P40 million in the same period last year.

Meanwhile, property arm Eton’s net income for the first semester fell by 29 percent year-on-year to P288 million due to the decline in residential unit sales and lower leasing income.

LTG’s 30.9-percent stake in Victorias Milling Company Inc. contributed P169 million in net profit.