Banks’ earnings grew an average of 5 percent in the third quarter, online brokerage firm Colfinancial.com said.
While still a mixed result, Colfinancial.com said five of the nine banks it monitors – Bank of the Philippine Islands (BPI), China Banking Corp. (ChinaBank), Metropolitan Bank and Trust Co. (Metrobank), Security Bank Corp., and Rizal Commercial Banking Corp. (RCBC) – reported higher net income for the period.
BDO Unibank Inc., EastWest Banking Corp., Philippine National Bank (PNB), and Union Bank of the Philippines (UnionBank) booked lower profits.
“As a whole, the banking sector’s earnings expanded by 5 percent. This was driven by higher fee-based revenues (up 21 percent) and lower provisions (down 51 percent).
Meanwhile, these were partially offset by weaker net interest income (down 4 percent) and trading gains (down 96 percent),” it said.
Colfinancial.com noted that despite the variance in profit result, BDO, ChinaBank, PNB, and UnionBank performed better than expected, while BPI tracked market estimates.
“EastWest, Metrobank, and Security Bank underperformed our expectations,” it said.
“The outperformances of BDO, ChinaBank, PNB, and UnionBank were driven by stronger- than-expected fees. In addition, ChinaBank and PNB reported higher-than-expected net interest income,” Colfinancial.com said.
“BDO and ChinaBank also booked stronger-than-expected foreign exchange gains and securities trading gains, respectively, Similarly, PNB booked very strong gains on asset sale from the disposal of non-performing loans,” it added.
EastWest and Metrobank reported weaker-than-expected net interest income and trading gains.
“EastWest also registered weaker-than-expected fee income. Meanwhile, Security Bank trailed our forecast due to lower-than-expected trading gains and higher-than-expected provisions,” Colfinancial.com said. .
Colfinancial.com said banks’ intermediation business remained weak amidst the reimposition of lockdowns in August, resulting for net interest income to decline by 4 percent, mainly dragged by lower net interest margin.
“While total interest-earning assets increased by 6 percent, this was driven by lower-yielding assets as total loans rose by only 1 percent,” it said.
All banks at the same time reported a slight sequential improvement in loan growth, with the median growth in loan portfolio at 0.3 percent compared to a 4.2 percent contraction in the previous quarter.
“Overall, we expect loan demand to continue recovering in light of the improving inoculation rate, easing quarantine restrictions, and declining COVID-19 cases,” Colfinancial.com said.
Colfinancial.com said that margins may have already bottomed.
“Note that bond rates have increased, with the yield curve shifting upwards. This should allow banks to gradually rebuild its bond portfolio. More importantly, we expect asset yields to slowly improve on the back of loan growth recovery which should lead to better asset mix. Meanwhile, we believe funding cost should be relatively sticky given the increase in CASA ratios for all banks,” it said.
The non-performing loan (NPL) ratio of banks it monitors meanwhile were at 3.8 percent, compared to 3.7 percent in the previous quarter. “Nevertheless, we think this should gradually improve going forward as more businesses are permitted to resume operations and operate at a higher capacity. As such, we think that credit cost should also decline, particularly for banks that have very high NPL coverage ratios,” Colfinancial.com said.
Banks reported substantially lower trading gains during the third quarter, with four banks even booking small losses, the stockbroker said.
“This caused the sector’s total trading gains to drop 96 percent. The steep decline is expected given that banks already sold a significant portion of their investment securities over the past several quarter. Moreover, bond rates also rose amid higher inflation expectations which dragged bond prices,” Colfinancial.com said.
“Going forward, we expect trading gains to be driven mainly by client-related flows from spreads,” it added.
