BDO profits surge in H1 as bank pares down loan loss buffers

MANILA, Philippines — BDO Unibank Inc. saw its profits surge nearly five times in the first half, as the Sy-led lender starts trimming rainy-day funds it set aside earlier to shield its balance sheet from a wave of unpaid loans from pandemic-hit borrowers.

The country’s largest bank in terms of total assets reported a net income of P21.4 billion from January to June, up by staggering 397.7% compared with the same period last year when a pandemic-induced economic meltdown tarnished lenders’ profits. In a regulatory filing, BDO attributed the earnings growth to “a strong sustainable earnings stream and normalized provisions”.

Investors seemed impressed with the bank’s financial performance. On Monday, shares in BDO rallied 4.41% to close at P106.50 apiece at the start of the trading week.

Explaining its financial results, BDO said less funds from its earnings were used as buffers against loan losses, with pre-emptive provisions against bad debts declining to P6.8 billion for the first six months.

Already, non-performing loans (NPLs), or soured debts left unpaid 30 days past the due date, accounted for 3.1% of BDO’s total loan portfolio as the pandemic-led recession continues to crush Filipinos’ incomes and hurt their capacity to repay bank loans. But the good news is BDO’s current NPL ratio is still below the bank’s “worst-case” expectations of 4-5%.

Despite paring down rainy-day funds, BDO said NPL cover remained “more than adequate” at 100%.

“BDO's solid balance sheet, healthy capital position, and sustained earnings performance put the Bank in a good position to leverage on the country's economic recovery,” the bank said.

Apart from reduced provision, BDO also credited its financial performance in the first half to an increase in non-interest income to P29.7 billion. Under this segment, fees charged by BDO to customers for using its banking services grew 20% annually to P16.1 billion, while income from insurance premiums grew a higher 31% to P9.2 billion.

Trading and forex gains “normalized” to P2.0 billion, the bank said.

But financial results showed BDO’s lending business still reels from the pandemic’s impact amid tight credit standards and weak appetite for loans. Net interest income went down 3.0% year-on-year to P64.4 billion from January to June. Customer loans, meanwhile, “remained flat” at P2.3 trillion.

On the expenditures side, BDO’s operating expenses grew 4% on-year to P60.9 billion driven by the 29% surge in expenses related to its life insurance business. But BDO remains well-funded, as total deposits, considered as lifeline for banks, grew to P2.7 trillion in the first half.