BDO expects margins to be flat or lower as market awaits cuts
BDO Unibank, Inc.’s net interest margin (NIM) could be flat or slightly lower this year, depending on when the Bangko Sentral ng Pilipinas (BSP) will begin its rate cut cycle, its top official said.
“I think generally we expect rates to go down, and when things start to stabilize, we expect NIMs to slightly decline because yields will go down. So that means that we expect it to be flattish to slightly going down,” BDO President and Chief Executive Officer Nestor V. Tan told reporters on the sidelines of their annual stockholders’ meeting on Friday.
BDO’s NIM stood at 4.6% in 2023, up from 4.1% the previous year.
Mr. Tan said he expects the BSP to move alongside the US Federal Reserve to protect the peso.
“There are two factors that you have to manage: the interest rate and the impact of the interest rate policies worldwide on our foreign exchange, both of which have inflationary and economic impact. So, if I were to guess, I would say they will move in lockstep with the Fed,” he said.
The Fed last month kept its target rate at the 5.25%-5.5% range for a fifth straight meeting after raising interest rates by a cumulative 525 basis points (bps) from March 2022 to July 2023.
Meanwhile, the BSP’s policy-setting Monetary Board this month left its target reverse repurchase rate unchanged at a near 17-year high of 6.5% for a fourth straight meeting.
The BSP raised borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation.
BSP Governor Eli M. Remolona, Jr. earlier said that their planned easing cycle may be pushed back to the first quarter of 2025 “if things are worse.”
He also told Bloomberg in an interview that rate cuts won’t be huge and will bring the policy rate closer to about 6%.
Mr. Tan noted that the bank can recoup the impact of lower borrowing costs on BDO’s NIMs through their low-cost current account, savings account (CASA) deposits.
“As you can see also, CASA is picking up. So, we may be able to offset that with lowering the cost of funds,” he said.
BDO’s total deposits rose by 10.76% to P3.57 trillion last year from P3.22 trillion in 2022, with its CASA ratio at 72%.
In the first quarter, deposits rose by 13% year on year, also mainly driven by the increase in low-cost CASA deposits.
BDO’s net income grew by 12% year on year to P18.5 billion in the first quarter as its core businesses remained strong.
The Sy-led bank’s shares last went down by P2.60 or 1.76% to close at P145.50 apiece on Friday. — Aaron Michael C. Sy
