Small banks post positive Q1 earning performances

CEBU, Philippines - The promising interest income growth in the banking sector has paved way for better earning performances of smaller banks, a financial analyst said.

Online investment powerhouse, COL Financial Philippines analyst Charles William Ang said that among the nine banks they monitored, seven posted higher profits, as all banks continued to benefit from sustained growth in net interest income with average of 14 percent growth year-on-year.

The industry as a whole grew its earnings by five percent, year-on-year, led by an 18 percent growth from relatively smaller banks.

Banks' net interest growth accelerated in first quarter of 2016, with total revenues up 14 percent from same period last year. Ang said this is notably higher than the 11 percent growth registered in the fourth quarter of 2015.

"Compared to our estimates, only BPI lagged our expectations, weighed down by slower than expected growth in interest earning assets. Note that BPI's six percent growth in net interest income marked the slowest growth rate over the last 12 quarters. All other banks seem on track to reach or exceed our 2016 estimates," Ang said through the company's market analysis update.

Banks also continued to post sustained volume growth, while margins improve a little.

"Banks were able to sustain the solid volume growth in the first quarter this year," Ang said.

By end of March 2016, loans and total interest earnings assets expanded by 17 percent and 11 percent respectively, largely at par with 16 percent and 12 percent average growth over the last four quarters.

This movement, according to Ang is also slightly above COL Financial's industry average loan forecast of 15 percent for 2016. More importantly, average net interest margin improved slightly in the first three months this year.

"Going forward, we continue to expect margins to remain flattish [at least for 2016] amidst the massive liquidity in the system. Nevertheless, the recent uptick in margins, if sustained, could potentially lead to an upside surprise for 2016," Ang added.

Barring any sharp jump in interest rates for the remained year, "we believe that banks could easily exceed our 2016 forecasts, thus providing an upside surprise to our net income estimates." — (FREEMAN)