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By Maricel E. Burgonio, Reporter
PHILIPPINE 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 their trading business turn south, pulling down
profitability.
Of the country’s top three lenders, Bank of
the Philippine Islands (BPI) suffered the biggest drop in its net
income at 52 percent year-on-year to P1.5 billion.
Top-ranked Metropolitan Bank and Trust Co.
posted a 15.64-percent decline in its bottom line to P1.76 billion,
while Banco de Oro Unibank (BDO) incurred a 24-percent fall in its
profit to P1.34 billion.
Bucking the trend was Philippine National Bank (PNB),
which recorded a 48-percent growth in net income to P457 million.
Although the lending business still accounted
for the bulk of banks’ total income, disappointing trading results
still managed to pull down their overall gains due to market
volatility arising from skyrocketing commodity prices, a global
credit crunch and heightened concerns over a possible recession in
the world’s biggest economy.
Metrobank suffered a 59-percent drop in trading
gains to P853.4 million in the first quarter.
“The continued global risk aversion and rising
domestic interest rates on the heels of higher inflation
expectations have made trading and investment activities difficult
compared to last year,” Fernand Antonio Tansingco, the lender’s
treasurer, said.
BPI saw its trading gains drop by 3.3 percent,
while BDO suffered a reversal, ending the first quarter with a
trading loss of P239 million from last year’s P1.213-billion gain.
Despite its income surge, PNB also incurred a
P12.607-million trading loss from last year’s P544-million gain,
mainly due to net losses on mark to market valuation of securities
attributed to decreasing interest rates.
“During the first quarter of 2008, yields have
started rising, and for banks which continue to hold on such
long-dated securities, the trading income has been much lesser now,
compared to the corresponding period,” Alfred Chan, Fitch Ratings
Inc. analyst, said.
Trading income is mainly derived from the
holdings of fixed income securities, most of which are government
papers. When interest rates went up, the value of the securities
fell.
Holding on to these assets made sense in 2006,
as lenders back then enjoyed huge gains from their treasury business
in light of their abundant liquidity, Fitch said. Add to that the
Bangko Sentral ng Pilipinas, which rewarded investors with a good
return of up to 7.5 percent a year.
Despite the low interest rate environment last
year, banks enjoyed large trading gains, which masked their limited
net interest income due to weak lending activity, Fitch said.
The credit rating company said the decline in
interest rates however has bottomed out, and it expects them to
rise, albeit gradually.
Consumption growth necessarily would turn
sluggish this year, and with it, demand for loans is unlikely to be
sustained, analysts said.
In spite of this scenario, banks have announced
plans of focusing more on consumer and corporate lending this year,
with the BSP seeing growth hitting the double-digit mark.
Aurelio Montinola, BPI president, expects the
second quarter to be the most challenging period for banks, as oil
prices are expected to peak, bidding up overall inflation, and with
it, interest rates.
“If inflation will drop in the fourth quarter,
then there are chances that it will hit 5 percent to 6 percent
average. When it doesn’t, it will be 7 percent,” he said.
The bank executive said lenders nevertheless
will issue more loans to the private sector as companies posted
stronger earnings in the first quarter. “[But] people are more
conscious and expect to be careful with their money,” he said.
The BSP shares lenders’ optimism about the
loan business this year.
“As [the] treasury business is not making
money as they used to, banks would probably want to step up [in]
areas that would make money like lending. That will help,” BSP
Deputy Gov. Nestor A. Espenilla Jr. said.
What would probably make this tack appealing is
that current interest rates are not yet high enough to lead to
deterioration in credit quality, he said.
“High interest rates not necessarily will have
an immediate effect in the profitability of the banks,” he added.
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