Despite weak loan demand, SM Group’s BDO Unibank Inc. earned P10.4 billion in the first three months of 2021, up by 19 percent year-on-year or from P8.8 billion, according to its president and CEO, Nestor V. Tan.

Tan said the bank’s 2021 outlook remains uncertain, citing inflation pressures, the government’s ability to meet anti-COVID-19 vaccination targets and the return to stricter lockdown measures which will further “temper” GDP growth which has showed signs of recovery before the March 29 reimposition of the enhanced community quarantine.

He said loan growth in the near term is expected to be slow and the net interest margin (NIM) will continue to have pressure from low interest rates. Wealth management is also expected to continue to have steady growth while he sees recovery in life insurance and other fee-based businesses. After the two Bayanihan laws’ graced periods and payment moratorium, Tan said delinquencies remain within expectations and could peak in the second quarter this year.

Tan said BDO’s net interest income in the first quarter dropped by three percent year-on-year to P32 billion on lower loan volumes and NIMs due to the decline in asset yields. Non-interest income, in the meantime, increased by 21 percent to P15.4 billion because of its life insurance business and normalized foreign exchange trading gains.

Its gross operating income was up by four percent to P47.4 billion while operating expense rose by two percent to P31.1 billion.

Tan said the bank’s non-performing loans (NPL) ratio was slightly higher as expected at 2.81 percent end-March this year versus 2.65 percent in 2020. With P64.4 billion soured loans, its provisioning reached P69 billion during the period.

He said the NPL ratio is “amply covered” by provisions. NPL coverage is at 107.1 percent, which the bank considers “more than adequate to cover for potential losses.”

Tan said the NPL rate could peak for the industry at three percent versus banks’ expectation of four percent to five percent in 2020.

“Right now, we’re looking at the banks’ NPL to peak at year-end at around three percent (and) we’re below that. So I think we’re trending quite better than what we anticipated,” he said during BDO's annual stockholders meeting on Friday.

“The challenge is not in the NPL ratio, the challenge is how we are able to remedy the situation once a client gets into trouble and we need to be able to help and work it out with them,” he added.

“We (also) need to protect the balance sheet and (in) 2020 we did pre-emptive provisioning (and) given the loss default that we have experienced which is about 50 percent, I think the balance sheet is adequately protected and more for potential increases in delinquencies if it should happen,” said Tan.

BDO’s capital base of P400.9 billion is eight percent more than same time in 2020. Its Capital Adequacy Ratio and Common Equity Tier 1 stood at 14.7 percent and 13.6 percent, respectively. Tan said both of these capital indicators are comfortably above regulatory levels and sufficient to withstand near-term shocks.

BDO, the country’s largest lender in terms of total assets, loans and deposits, has 1,400 branches and 4,400 ATMs nationwide.