Top Philippine Lender Bullish But Says Rate Cuts Are ‘Headwinds’
(Bloomberg) -- BDO Unibank Inc., the Philippines’ biggest lender by assets, expects to sustain its record net income despite “headwinds” from interest rate cuts that may squeeze margins, its top executive said.
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“We believe it’s sustainable. It’s the normal growth that rides on the growth of the economy,” BDO President and Chief Executive Officer Nestor Tan said in an interview with Bloomberg Television on Wednesday when asked about the bank’s earnings outlook.
“Although, of course, there’s headwinds, which is the rate cut, but generally, our earnings are from our core businesses,” Tan said.
BDO is owned by the family of late billionaire Henry Sy that also controls the Philippines’ biggest shopping mall operator and retailer. The lender reported first-half net income of 39.4 billion pesos ($682 million) up 12% from a year ago, after posting record earnings in recent years.
Interest rate cuts mean declining margins, although a lowering in banks’ reserve requirement ratio will reduce funding cost, he said. BDO will mitigate the impact of thinner margins by expanding its consumer segment and boosting lower-earning deposits, Tan added.
The Southeast Asian economy had grappled with elevated cost of borrowing before the central bank began easing its monetary policy in August that lowered its key interest rate from a 17-year high. The Bangko Sentral ng Pilipinas will announce its latest rate move on Wednesday, with majority of 26 economists surveyed by Bloomberg expecting another quarter-percentage point rate cut.
Tan expects the central bank to push ahead with a 25-basis point reduction on Wednesday, and another cut of the same size in December. He expects the BSP to reduce the rate by around 100 basis points next year.
BDO is building its wealth management business and will open offices in Singapore and Hong Kong, targeting “cross border business from the Philippines,” and is working to penetrate the Philippines’ large unbanked population, he said.
Tan also said the bank is mindful of geopolitical risks, including US elections as well as the South China Sea territorial dispute that has fueled tensions between the Philippines and China. “It’s not so much the impact on business, but the impact on the investment sentiment.”
--With assistance from Haslinda Amin, Anand Menon and Manolo Serapio Jr..
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