JP Morgan expects improved ROE for local banks

MANILA, Philippines - Global financial services firm JP Morgan Chase & Co. expects an improvement in the return on equity (RoE) of various Philippine banks for the remaining quarters of the year due to improving core income and prudent cost growth.

“On a core basis, we see banks improving RoE as they benefit from the country’s under-penetrated market, high liquidity and benign asset quality issues,” the company said in its recent study on Asean banks.

JP Morgan also sees a stable to slightly improving net interest margins (NIMs) as banks shift their loan book to higher-yielding market and consumer loans.

Furthermore, bond yields are expected to be at record lows and should move with the rate cycle over the next few years, the report said.

The company anticipates costs to slightly increase over the next quarters as banks remain in investment mode. Credit costs are expected to remain broadly stable over the next quarters as the system remains in the early stages of the asset cycle, it said.

“Credit costs may decline if banks compete more aggressively on asset quality to sustain loan growth,” JP Morgan said.

East West Banking Corporation, the banking unit of the Gotianuns, is also expected to deliver P561 million net income for 2Q 2015, a five percent decrease year-on-year as trading income normalizes.

 “Sustaining its above-industry loan growth, maintaining NIMs and managing costs will be imperative for the bank to deliver higher returns,” JP Morgan said.