PNB starts building digital-only bank business

Published March 21, 2021, 8:00 AM

by Lee C. Chipongian

The Lucio Tan-controlled Philippine National Bank (PNB) has started to build its digital-only banking business and is scouting for partners, but its president and CEO Arnulfo “Wick” Veloso is still unsure if this could be set up in six months to a year.

“We need to finish the business plan first,” said Veloso in an online press briefing. The process of applying for a separate digital banking license is another thing. There is also the ongoing process of selecting partners for its digital business.

“The application of the license is something that is not within our control, it is upon submission to the regulators. So it’s – a) having the business plan, b) the discussion with partners in the digital bank and to get them to sign up, and c) the regulators (Bangko Sentral ng Pilipinas),” said Veloso.

PNB President and CEO Arnulfo “Wick” Veloso

PNB has allotted P3.5 billion in capital expenditures for its IT side alone for 2021, a big part of its digitalization project, said its chief executive officer and EVP Nelson “Sonny” Reyes. “We’re accelerating digital capabilities, much of the budget for capital expenditures are really on information technology … majority is on IT,” he said. The bank has also P1.5 billion budget for other projects such as improvement of its network and premises.

On plans to beef up on digitalization partnerships, Veloso said these are all still under study. Veloso said the selection of these digital business partners will hinge on benefits to PNB such as having a “very strong lending part of the business” that will allow the bank to address credit risk monitoring, collection, and even credit assessment which will be the “biggest differentiator” in the digital banking business.

“A digital bank is totally separate from the current bank that we operate that would allow (to get rid) of the brick and mortar and to be able to compete and acquire more customers,”said Veloso.

“We’re currently studying this and the business plan is being looked up — who are we going to work with, what the structure is going to be … and that really gives us a lot of excitement because that is the future. That is where we are all headed.”

PNB currently has 4.4 million account holders. Veloso said 2.8 million of these are eligible for digital banking and about 785,000 are already enrolled in their digital space such as mobile and online banking.

Veloso is confident they have one of the most user-friendly mobile banking in the country, and he plans to further improve on it by increasing services and networks such as more pawnshops for transactions and remittance, as well as bills payment.

“The bank is committed to accelerate digital transformation in terms of offering enhanced digital banking products and services for clients and improving our way of doing business,” said Veloso. “We plan to establish partnerships with other institutions (pawnshops, malls and others) to foster cross-functional collaborations, provide bundled solutions, and jointly acquire customers.”

PNB’s net income during the first pandemic year fell by more than 73 percent to P2.625 billion in 2020 from P9.761 billion in 2019 with a bigger loan loss provisioning of P16.883 billion compared to the previous P2.91 billion pre-COVID-19.

“2020 could have been a banner year for PNB if it were not for the challenging economic landscape and the loan loss allowance that we had to set aside for NPLs (non-performing loans),” said Veloso. The bank reported a lockdown-induced net NPL ratio of 6.93 percent in 2020 versus 1.54 percent in 2019.

Veloso is cautiously optimistic on 2021 prospects for PNB and the banking industry as a whole. The bank has a system in place to determine how loan clients can be assisted based on their financial resiliency and industry vulnerability to the COVID-19 situation, he said.

Along with the economic recovery, Veloso said PNB’s net income will gradually achieve pre-pandemic numbers next year.

The expected higher economic growth, driven by a sustained infrastructure investment push and steady recovery of the private sector, will boost the bank’s businesses,” said Veloso. “PNB’s net income is projected to steadily increase in 2022-2023, supported by improvement in net interest income with higher income contribution from loans as growth is anticipated at double-digit, coupled with increase in yield rates,” he added. In the meantime the monetization of its three major real estate assets is on track and that he is optimistic that they will “close the transaction by the end of this year.” PNB is expected to generate P80 billion from these transactions.