Sy-controlled banks post mixed financial results in turbulent 2020

MANILA, Philippines — The Sy family's two listed banks capped a turbulent 2020 that tested the local banking industry's resilience amid a pandemic-induced recession with mixed financial results.

In a disclosure to the stock exchange on Friday, BDO Unibank Inc. reported a net income of P28.2 billion in 2020, plummeting 36.2% year-on-year. Separately, China Banking Corp. reported a bottomline of P12.1 billion last year, up 20% annually.

BDO's earnings sagged after it increased its loan loss buffers to a total of P30.2 billion last year, an action meant to shield the bank's balance sheet from the wave of unpaid debts from borrowers who lost their jobs because of the pandemic. 

In 2020, 2.65% of BDO's total loan portfolio was non-performing, or those that remain unpaid 30 days past due date. But the lender said its non-performing loan (NPL) coverage ratio, which measures the sufficiency of banks' allowance for credit losses, stood at 109.5%.

Broken down, BDO's net interest income jumped 12% year-on-year to P133.7 billion, with loans growing 3% annually to P2.3 trillion "driven by consumer and corporate accounts," financial results showed. Non-interest income, on the other hand, declined 8% year-on-year to P55.2 billion. 

Operating expenses fell 2% on-year to P112.6 billion after BDO cut marketing and volume-related expenses to conserve cash amid hard times.

"The bank relied on its strong and resilient business franchise and balance sheet to support core business operations, despite significant hurdles from the pandemic and ensuing economic lockdown," BDO said.

The continued rise of soured debts also prompted China Bank to hike its loan loss provisions last year to P8.9 billion, 3.5 times bigger than the amount it set aside in 2019. Bad debts held by the lender last year cornered 2.3% of its entire loan portfolio, although NPL coverage remained sufficient at 128%.

But the higher provision cost was offset by "strong growth in core businesses and better investment and trading returns," China Bank said. The lender ended 2020 with net interest income up 30% year-on-year to P33.8 billion, while non-interest income grew 19% to P10.0 billion.

The bank also said its cost management efforts helped control operating expenses at a growth of 6% to P21.5 billion. That yielded a cost-to-income ratio of 49% from 59% previously despite the addition of pandemic-related expenses.

"Going into the crisis, China Bank was operationally and financially sound, but what enabled us to remain resilient and to sustain our growth momentum was our employees who went above and beyond in 2020,” China Bank President William Whang said.

Moving forward, the surge in bad loans will likely continue eroding lenders' earnings this year as grace periods extended to borrowers end. NPL ratio is seen to shoot up to 6% by the second half from 3.6% as of end last year. As a result, banks will set aside more resources to cover profit losses from NPL, which in turn would sideline lending. Credit set aside for this purpose will reach 1.7% of total loans this year, albeit down from 2% last year.

Monetary authorities are banking on the Financial Institutions Strategic Transfer (FIST) law to deliver the much-needed rescue for banks to offload bad assets, free up their resources otherwise funneled to cover losses, and lend again. For now, BDO said it "remains cautiously optimistic on a gradual upturn in 2021."

China Bank, meanwhile, said its defenses are still up. "We have formulated strategies to mitigate asset quality issues given the possibility of a drawn out pandemic,” Patrick Cheng, company CFO, said.

Shares in BDO gained 2.23% to finish the week at P105.50 each, while China Bank was up 1.05% to close at P24.10 apiece.