MAYBANK ATR Kim Eng expects the Philippine banking industry to post a 12-percent growth in core net income this year, as it focuses on consumer lending, “where margins are fatter and penetration is low.”
Maybank ATR analysts Katherine Tan and Arabelle Maghirang said strong economic growth will be sustained, driven by robust domestic demand.
“There will be a corresponding growth in lending activities to be supported by abundant liquidity, which will be channeled into healthy deposit levels. Financial liquidity will also be bolstered by a structural current-account surplus,” the analysts said in a research note.
The analysts said the unbanked areas are essentially the new-growth opportunities for the banking industry.
Their top stock picks include BDO Unibank, Metrobank, Rizal Commercial Banking Corp. (RCBC), Security Bank and EastWest Bank. They maintain a “hold” recommendation for the Bank of the Philippine Islands (BPI), China Banking Corp., Philippine Business Bank (PBB), Philippine National Bank (PNB) and Union Bank of the Philippines (UnionBank).
Based on the research, BDO has been expanding in underserved areas, as shown by its acquisition of One Network Bank. Its focus on core lending business partially offsets the risk of lower trading gains.
Metrobank is enhancing its niche market. The bank targets a strong loan growth of 18 percent to 20 percent this year, as it grows its niche middle market and consumer businesses.
BPI aims to enhance client relationships by cross-selling products and services to its existing depositors, whose diverse financial requirements remain largely untapped. BPI is also beefing up fee-based earnings by reinforcing assets under management and investment banking.
PNB has to increase economies of scale. The bank still has much untapped potential given its sizable branch network, government loan account and sticky current- and savings-account deposits.
China Bank’s strength in commercial loans is being complemented by a deepening focus in small and medium enterprises (SMEs) and consumer lending. Its investment-banking unit is helping drive fee-based income, now 10 percent of gross earnings.
RCBC is expanding its presence in the middle market, SME and consumer segments. Its plan is to grow with its customers, which will eventually become big players in their respective industries.
Security Bank is diversifying into the consumer market. It has formed a joint venture with FWD Life to offer insurance products that should lift its fee-based income.
EastWest’s new capital of P8 billion from its recent stock-rights offer boosts its consumer lending. It has established its life-insurance segment via its joint venture with Aegeas Insurance International of Belgium.
UnionBank, through City Savings Bank, is gaining traction in teacher’s salary-loan business. Eventually, better credit growth could reduce its dependence on treasury gains.
PBB is undergoing branch expansion and small-scale acquisition. PBB can easily upgrade to a universal bank, which would then allow broader products and services offering.
Malayan Banking Berhad (Maybank) is looking at expanding its footprint in the Philippine market. Maybank Group President and CEO Datuk Ahmad Farid Alias said the country’s demography would bring huge dividends that would further push the economic growth to 7 percent to 8 percent.
He said they intend to expand in the Philippines, but they have no immediate plan of buying a Philippine bank.