Bank earnings seen to grow 8.7% this year

MANILA, Philippines - Singapore-based ATR KimEng Securities Inc. sees bank earnings growing by an average of 8.7 percent this year on the back of improving lending growth over the past few months.

Luz Lorenzo, group economist of ATR KimEng, said in its news and views round up entitled “Daily Edge” that improving lending activity would bode well for earnings.

“Our forecast this year is equally conservative ranging between five percent for Metrobank and 12.5 percent for BDO (Banco de Oro), putting the average at 8.7 percent,” Lorenzo said.

She pointed out that banks ended 2009 with a larger-than-expected loan book.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that bank lending grew at a faster pace of 10 percent to P2.146 trillion in December last year from P1.951 trillion in the same month in 2008 on the back of recovering credit demand particularly from the private sector.

Data showed that production loans went up by 9.9 percent to P1.921 trillion in December last year from P1.748 trillion in the same month in 2008 while household consumption loans jumped by 11 percent to P176.61 billion from P159.066 billion.

“While part of this is probably on account of yearend window dressing, we suspect that much of it is actually driven by a real economic recovering judging by the export recovery and sustained gains in remittances from overseas Filipinos,” Lorenzo said

She said, the gradual economic recovery would translate to higher bank lending this year with the expected rise in funding requirement of private enterprises but would be affected by the much anticipated rise in interest rates with the start of the tightening cycle of the central bank’s Monetary Board (MB).

“We are working on the assumption that the economy’s growing funding requirement will be partly mitigated by the dampening effect of an expected increase in lending rates as central banks start to tighten,” she added.

The central bank’s Monetary Board has slashed key policy rates by 200 basis points from December 2008 to July last year as part of easing measures to boost the country’s slackening domestic economy. This brought the overnight borrowing rate to a record low of 4.0 percent and the overnight lending rate to six percent.