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By Maricel E. Burgonio, Reporter
DESPITE sustained loan growth,
Philippine lenders’ trading income will decline further in the
second quarter of the year, pulling down their profitability,
Deutsche Bank said.
“Trading in the second quarter
may not look much better, and even worse quarter on quarter,”
Rafael Gachitorena, Deutsche Bank analyst said in its latest equity
research.
Gachitorena said domestic
interest rates moved up by over 100 basis points in the second
quarter compared with less than 40 basis points in the first
quarter.
Furthermore, the price of
US-dollar denominated Philippine sovereign bonds—also called ROPs
(Republic of the Philippines IOUs)—fell in the second quarter,
reversing gains in the first quarter.
“Thus, larger mark-to-market
losses appear either on the profit and loss or the capital
accounts,” Gachitorena said.
Banks are struggling to sustain
their profits by boosting their lending activity in the face of
weakness in their treasury business.
In the first quarter this year,
big commercial banks saw declines in their trading business, pulling
down profitability due to market volatility arising from
skyrocketing commodity prices, a global credit crunch and heightened
concerns over a possible recession in the US.
Of the country’s top three
lenders, Bank of the Philippine Islands suffered the biggest drop in
its net income at 52 percent year-on-year to P1.5 billion.
“While it may be tempting to
annualize poor first half of 2008 profits, we note that
mark-to-market accounting has made quarterly profit and loss quite
volatile. Interest rates have flattened out and ROP process have
risen this month,” Gachitorena said.
He said banks are wary of high
inflation and its impact on corporate margins particularly small and
medium enterprises (SMEs).
Gachitorena said bank’s
non-performing loans are far from a problem after easing to 4
percent. For the first quarter, outstanding loans of commercial
banks, including overnight transactions with the central bank, rose
10.6 percent year-on-year.
Fitch Ratings Inc. earlier said
the Philippine banking system has depended on trading income in
terms of allocation of investments. About 25 percent of the banking
system assets are allocated mostly in government debt securities.
The Bangko Sentral ng Pilipinas
earlier said lending growth could still hit 10 percent this year
because of low bad assets and increased demand for consumer and
infrastructure loans. Its overnight borrowing and lending rates now
stand at 5.75 percent and 7.75 percent, respectively. 
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