Shares of listed Philippine banks rise in 2nd quarter

The article “Listed banks’ share prices rise in Q2” by Heather Caitlin P. Mañago in BusinessWorld’s quarterly banking report published on Sept. 15 misstated that Philippine Savings Bank (PSBank) posted a 50.8% share price decline in the first half, but it actually rose by 6.4%. The article also misstated that Bank of Commerce stock contracted by 94%, but it went up by 7%.

We deeply regret the errors and extend our apologies to PSBank, Bank of Commerce and our readers.

BANKING STOCKS rose in the second quarter as rate cuts coupled with steady inflation impacted profit margins, analysts said.

They also cautioned investors to further monitor rate cuts from the Bangko Sentral ng Pilipinas (BSP) and further actions by the US Federal Reserve.

The Philippine Stock Exchange index (PSEi) inched down by 0.7% year on year to 6,364.94 at the end of the second quarter.

However, the financials subindex, which includes banks, climbed by 18.4% annually to 2,278.62 during the period.

During the period, 11 out of the country’s 13 listed universal and commercial banks (U/KBs) posted growth in their share prices year on year.

Philippine National Bank (ticker symbol: PNB) led with 142.3% year-on-year surge. It was followed by Asia United Bank Corp. (AUB, 75.6%), China Banking Corp. (CBC, 69.9%), Philippine Bank of Communications (PBC, 37.6%) and BDO Unibank, Inc. (BDO, 19.2%).

Listed thrift bank Philippine Savings Bank also grew by 6.4% year on year.

Meanwhile, Philippine Trust Co. (PTC) stock contracted by 26.8%, year on year as of end-June while Union Bank of the Philippines’ (UBP) dropped by 4.5%.

Aggregate net income of universal and commercial banks grew by 3.1% to P184.46 billion as of end-June from P178.91 billion in the same period a year ago, data from the BSP showed.

Gross total loan portfolio of these big lenders rose by 11% to P14.7 trillion as of end-June from P13.25 trillion a year ago.

The big banks’ gross nonperforming loans (NPLs) ratio improved to 3.05% as of end-June from 3.21% the previous year.

Meanwhile, the big banks’ net interest margin (NIM) — a ratio that measures banks’ efficiency in investing their funds by dividing annualized net interest income to average earning asset — rose to 4.13% as of end-June from 4.04% recorded a year earlier.

Provision for credit losses by these big banks reached P71.81 billion, up by 67.6% from P42.84 billion in June 2024.

RATE CUTS AND TARIFFS
Luis A. Limlingan, head of sales at Regina Capital Development Corp., said that BSP rate cuts are one of the primary drivers of the performance of listed banks for the second quarter.

He pointed out that reduced interest rates not only encourage borrowers to tap into cheaper loans — driving loan growth and broadening the banks’ customer base — but also led to increased profits from trading activities.

“Overall, the rate cuts created a dual benefit: stronger loan growth and enhanced investment returns, both of which supported the banking sector’s bottom line,” Mr. Limlingan said in a Viber message.

Kervin Laurence S. Sisayan, vice-president and head of research at Maybank Securities Philippines, Inc., said that another BSP movement, which influenced banks’ performance during the period, were the reserve requirement ratios (RRRs) jumbo cut made as of end-March.

“A cut in RRR would reduce the pressure on funding costs for banks in general and would typically be margin accretive,” he said in an e-mail.

As of end-March, the central bank reduced RRRs by 200 basis points (bps) to 5% for U/KBs from 7%. Additionally, RRR for digital banks were also slashed by 150 bps to 2.5%, while the ratio for thrift lenders was lowered by 100 bps to 0%.

He added that subsequent cuts in policy rates have pushed industry asset yields lower, offsetting the potential improvement from the RRR cut.

For Abigail Kathryn L. Chiw, first vice-president and head of research at BDO Securities Corp., the steady improvement in the macroeconomic conditions of the Philippines helped sustain strong loan demand on the back of corporate and consumer segments.

“Easing funding costs and rising mix of higher-margin consumer loans also resulted to sequential upturns in lending margins,” said Ms. Chiw in an e-mail.

However, she also said that the aggressive expansion in unsecured consumer loans, such as credit cards, prompted banks to increase their provisions to guard against NPL risks which has dragged earnings.

Ralph Jonathan B. Fausto, research associate in Chinabank Securities Corp., said that outlook for monetary policy from the BSP and the US Federal Reserve, coupled with uncertainties in external trade policy, remain key drivers during the period.

These factors, he said, have direct implications for loan demand and net interest margins.

“The sustained expansion of listed banks into the consumer lending segment has been underpinned by stable and low domestic inflation, and robust employment conditions — which continue to support a constructive outlook for household consumption,” he said in an e-mail.

In June, headline inflation picked up to 1.4%, inching up from 1.3% in May. However, this was still slower than the year-earlier 3.7%.

In the six months to June, inflation averaged 1.8%, slower than the 3.6% average in the same period last year.

This prompted the central bank to implement a second straight rate cut, lowering the policy rate from 5.5% to 5.25%, marking its lowest level in two and a half years.

During its August policy meeting, the BSP reduced the target reverse repurchase rate by 25 bps bringing it down to 5% from 5.25%, the lowest rate in nearly three years, since November 2022.

Since its easing cycle in August 2024, the BSP lowered borrowing costs by a total of 150 basis points.

Jash Matthew M. Baylon, equity analyst at The First Resources Management and Securities said that aside from the BSP rate cuts, global uncertainty due to tariff wars added a cautious stance across business confidence which impacts banks’ operations.

In April, US President Donald J. Trump announced a reciprocal tariff rate of 17% on goods from the Philippines, but the implementation was postponed until July.

Then, in early July, he raised the tariff rate to 20% and after a meeting with Philippine President Ferdinand R. Marcos, Jr., Mr. Trump implemented a new tariff of 19% on Philippine goods, which took effect on Aug. 7.

STANDOUTS
BDO, PNB, Bank of Commerce (BNCOM), and CBC stood out in the second quarter amid loan expansions and strong earnings, analysts said.

For Mr. Limlingan, PNB and BNCOM stood out in terms of bottom line, “posting some of the highest returns among banks during the period.”

“[They] benefited from strong loan portfolio expansion and robust trading gains, reflecting sustained growth momentum,” he said.

He added that banks remain aggressive in expanding their lending activities, buoyed by expectations of possible rate cuts in the next few months.

For Ms. Chiw, CBC stood out with robust earnings growth and return on equity for the quarter. The solid 18% earnings growth and 15% return on equity of CBC during the period was driven by strong loan expansion, improved NIMs, solid asset quality with a nonperforming loan ratio, and one-off foreclosure gains covering increased provisions.

For Mr. Fausto, BDO’s corporate loan growth accelerated in the second quarter, indicating a recovery in business borrowing after being dampened by US tariff uncertainties in the prior quarter.

Meanwhile, Security Bank Corp. (SECB) “reported higher-than-anticipated provisions in [the first half of the year], largely attributable to its aggressive expansion in the credit card segment,” he added.

For Mr. Baylon, smaller banks could maximize the current economic situation, which could potentially enhance their net interest margins in a lower rate environment. On the other hand, larger universal banks experience a negative impact on their earnings.

OUTLOOK
Ms. Chiw said that the central bank can deliver one more rate cut this year as inflation remains below the BSP target.

“Accommodative interest rates are supportive of growth, which should be a net positive for banks,” she said.

She expects banks to deliver healthy earnings growth and sees lower borrowing costs could lead to an increase in lending activity and a reduction in NPL stress. This, in turn, would enable banks to reduce their provisioning costs.

“Volatile financial markets may also provide trading gains or losses,” she said.

Similarly, for Mr. Limlingan, he is supportive of further rate cuts from the BSP as it can allow banks to broaden their markets.

“In the short term, profitability may improve as trading gains strengthen. However, we also anticipate increased pricing competition among banks, as adjustments in product pricing could pose risks to their margins,” he said.

He added that further rate cuts could boost banks’ revenues and bottom lines through several channels that benefit from a more dovish policy stance.

Mr. Sisayan expects recent policy rate cuts to put further pressure on NIMs.

“With lower rates, and more clarity on global trade, the weakness in NIMs could be offset by stronger loan growth as corporates become more confident to pursue expansion plans,” he said.

Chinabank Securities’ Mr. Fausto and BDO Securities’ Ms. Chiw advised investors to closely monitor loan growth, NIMs, and asset quality of banks.

Mr. Fausto said the BSP’s 25-bp rate cuts in April and June are expected to help loans grow faster, especially within the corporate lending space.

“Net interest margins, however, are expected to be broadly stable — with some seeing marginal uplift from lower funding costs,” Mr. Fausto said.

He added that with major listed banks growing their high-yield loan segments, it’s important to keep an eye on credit costs and NPL ratios.

Additionally, Ms. Chiw said that key concerns right now are Mr. Trump’s erratic trade policies and attempts to undermine US Fed independence.

“These may result to renewed interest rate and exchange rate volatility potentially hurting consumption and investment appetite,” she said.

Moreover, for Mr. Baylon, investors should keep an eye on global events, especially decisions by the US Fed, since these can affect the local currency and foreign investments, which in turn influence bank operations.

He also anticipates that consumer and retail banking will be a major earnings contributor for large banks this year, driven by improved purchasing power and stronger domestic spending as inflation eases.

He added that even with the potential for a policy rate cut from the BSP, robust consumer activity may sustain credit demand, particularly for personal loans, auto financing, and credit cards.

“This volume-driven growth could help offset margin compression, positioning big banks to benefit from a more consumption-led recovery,” he said. — HCPM