By Aaron Michael C. Sy, Reporter
BANKS’ net income growth could slow for the rest of the year as the Philippine central bank’s policy easing cycle put pressure on their margins, according to analysts.
“We should start seeing volume-driven growth this year and we expect earnings to remain strong albeit on a slower growth trajectory as lending rates start to decline,” Alfred Benjamin R. Garcia, research head at AP Securities, Inc., said in a Viber message last week.
In the first quarter, the banking industry’s combined earnings jumped 10.6% year on year to P101.9 billion as interest and noninterest incomes rose, according to data from the Bangko Sentral ng Pilipinas (BSP).
“Bank earnings were largely in line with expectations, with Metropolitan Bank & Trust Co. (Metrobank) and China Banking Corp. slightly exceeding our forecasts,” Mr. Garcia said. “Union Bank of the Philippines, Inc. and Security Bank Corp., on the other hand, missed expectations due to rising costs.”
He said banks’ net interest margins and return on equity (ROE) started narrowing in the first quarter, though bad loans remained stable despite the push to lend more to consumers.
The industry’s bad loan ratio was steady at 3.38% in February from the previous month and lower than 3.44% a year earlier.
“The second quarter may see slower income growth as rate cuts squeeze margins,” Luis A. Limlingan, head of sales at Regina Capital Development Corp., said in a Viber message.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. has said the Monetary Board could deliver two more 25-bp cuts this year amid easing inflation, with the next potential cut as early as June 19.
After June, the Monetary Board’s remaining meetings are scheduled for August, October and December.
The central bank last month resumed its easing cycle, cutting its policy rate by 25 bps to 5.5% after pausing in February. The BSP has cut borrowing costs by 100 bps since it started its easing cycle in August last year.
Mr. Limlingan said banks’ shift to consumer lending could raise both revenue and credit risk.
“BDO Unibank, Inc., Bank of the Philippine Islands (BPI) and Metrobank led in earnings, while Security Bank and East West Banking Corp. saw the fastest profit growth on margin gains and lower provisions,” he pointed out.
John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said lenders’ operating expenses could also increase for the rest of the year due to continued investments in digital transformation, cybersecurity and compliance.
“While asset quality has improved, banks must remain vigilant against potential upticks in nonperforming loans, especially if economic recovery slows,” he said in a Viber message.
He also said banks’ rising consumer loans have net positive, contributing to higher interest income and reducing reliance on corporate lending.
“However, this expansion also brings challenges, such as heightened competition, the need for robust risk management systems and increased regulatory scrutiny,” he added.
