BDO Unibank sees 2023 with guarded optimism

MANILA, Philippines — The country’s largest bank sees 2023 with guarded optimism despite a strong growth in earnings in the first quarter amid elevated inflation and rising interest rates.

In a press conference, Nestor Tan, president and CEO at BDO Unibank Inc., said the bank is looking out for potential collateral damage from aggressive monetary tightening.

Since May last year, the Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 425 basis points to fight inflation and stabilize the peso. This brought the benchmark rate to a 16-year high of 6.25 percent from an all-time low of two percent.

This helped the peso bounce back to the 53 to $1 handle after hitting an all-time low of 59 to $1 in October last year, while inflation cooled to a six-month low of 7.6 percent in March from 8.6 percent in February.

Inflation averaged 8.3 percent in the first quarter, way above the central bank’s two to four percent target range.

For the first quarter, the country’s largest bank reported a 41-percent jump in net income to P16.5 billion from P11.7 billion in the same quarter last year.

“We are doing well, but we’re not yet out of the woods,” Tan said.

Tan likened the situation in 2022 when BDO started the year exuding exuberance only to be disappointed when the government imposed stricter COVID-19 quarantine and lockdown protocols due to the spread of the more contagious Omicron variant.

However, Tan said the Philippines managed to book a faster gross domestic product (GDP) growth of 7.6 percent last year from 5.7 percent in 2021, slightly higher than the government target of 6.5 to 7.5 percent.

Although private consumption was back above pre-pandemic levels, Tan said that investment spending continued to lag.

However, he cited that elevated inflation and higher interest rates globally and locally would continue to serve as headwinds.

Despite the aggressive rate hikes, Tan said BDO is projecting an eight to 10- percent increase in loan disbursements this year.

For the first quarter, the bank booked an eight-percent rise in gross customer loans to P2.6 trillion, while non-performing loan ratio improved to 1.98 percent from 2.72 percent.

Despite the 15-percent decline in provision for potential loan losses to P3.2 billion from P3.7 billion, BDO’s NPL coverage ratio rose to 170 percent from 120 percent as it continued to maintain a conservative credit and provisioning policies.

According to Tan, provision for potential loan losses for this year will be slightly less than last year, but still adequate. Last year’s provisioning slipped by four percent to P16.4 billion from P17.1 billion in 2021.

He said that economic activity in the country is very much dependent on what is going on outside.

“The geopolitical tensions, which affects the supply chain, the moves of the big economy when it comes to interest rates, the movement of interest rates impacts our own foreign exchange, impacts our own importation, impacts our own economy.

He concluded that a lot of factors affecting the Philippines “are not within our control.”