Economy not out of the woods yet, says head of biggest bank

MANILA  -BDO Unibank Inc. president Nestor Tan said the economy was “not out of the woods” and the banking giant would maintain a guarded outlook for 2023 even after reporting strong first quarter results that puts it on course to beat last year’s record profit.

BDO, the Philippines’ biggest lender and the flagship banking arm of the Sy family’s SM Group, is targeting loans to grow 8-10 percent this year while asset quality indicators are also improving, Tan said.

Even then, the bank president said he remained cautious given that high inflation and interest rates raise the risk of “unintended consequences.”

“When you have the opening up [of the economy] there’s exuberance to lend aggressively but we’re not sure how the year will pan out,” Tan told reporters in a briefing ahead of BDO’s annual stockholders’ meeting on Wednesday.

“We have to be watchful because when you have higher rates there’s a tendency for defaults to also go up,” he said.

The Bangko Sentral ng Pilipinas has continued to raise interest rates since last year to tamp down persistent inflation, which reached an average 5.8 percent last year—above the government’s target range of 2-4 percent.

According to Tan, asset quality on their current loan portfolio is healthy but risks remain.

“What we’re not sure of is the trajectory of interest rates and how it will impact [loans] and the new loans that we bring in which may be coming from an optimistic outlook,” he said.

Nevertheless, Tan said they were targeting to sustain growth due to the economy’s continued expansion and strong private consumption.

The 2023 outlook for net interest margin, supported by BDO’s robust base of current account, savings account deposits, is “stable to improving” apart.

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