BPI prepares for likely decline in trading gains

MANILA, Philippines—Ayala-led Bank of the Philippine Islands plans to buy back P5 billion worth of debt notes and strengthen core lending operations to compensate for declining trading gains amid a more challenging market environment.

In a disclosure to the Philippine Stock Exchange on Thursday, BPI said its board had approved the exercise of the bank’s option to redeem the P5 billion tier 2 notes issued in December 2008. These debt notes will no longer qualify as tier 2 or supplementary capital under the Basel 3 capital adequacy framework which will take effect in January 2014.

“The tier 2 notes were useful to have when we did it but right now, we have plenty of liquidity, ample capital and if they re-price, they will be re-priced expensively,” BPI president Cezar Consing told reporters at the sidelines of the 5th Corporate Treasury and CFO Summit organized by FinanceAsia.

These are the only tier 2 notes in BPI’s books, which are mostly funded by tier 1 or core capital.

Consing said BPI would work to sustain the growth in core lending.

While Philippine banks are mostly expected to end this year with record high profits due to large trading gains, 2014 is expected to be more challenging.

“Next year, it will be more of the bread and butter business, more basic intermediation. But the pie is also getting bigger so there could also be room for a lot more bread and butter business. Hopefully that compensates for any decline in extraordinary gains,” Consing said.

Alfonso Salcedo, senior vice president and head of corporate lending at BPI, said loan demand was being sustained at “mid-teen” levels. “We don’t see any change in sentiment,” Salcedo said, referring to corporations across all sizes and geographical bases nationwide.

Consing said the damage caused by Tropical Storm Maring and monsoon rains that ravaged the metropolis and some parts of Luzon in the last three days would pare the country’s domestic product by “a few basis points” but this would, “hopefully, be manageable.”