ANALYSTS remain cautiously optimistic on bank stocks amid uncertainties surrounding the prospects of easing lockdown restrictions and the pace of vaccinations, which would influence demand for loans as well as the willingness of banks to lend.

The Philippine Stock Exchange’s (PSE) financials sub-index, which included the banks, ended the first quarter at 1,373.83. This marked the sub-index’s 5.1% decline on a quarter on quarter basis, which is a reversal of the 26.8% gain in the preceding quarter. The first-quarter decline, however, was slower than the 34.3% plunge recorded in the same quarter last year.

Still, this sub-index continued to outperform the benchmark PSE index’s (PSEi) steeper decline in the first quarter when compared with the performance seen in the fourth quarter of 2020.


In the first quarter, only three listed banks posted higher share prices compared with the preceding three months: Philippine Bank of Communications (PBC, 8.3%), Philippine Savings Bank (PSB, 2.8%), and the Bank of the Philippine Islands (BPI, 0.2%).

On the other hand, Philippine National Bank (PNB) saw the biggest share declines among listed banks at 22.8%, followed by double-digit declines in Philippine Trust Co. (PTC, -19.5%), Philippine Business Bank (PBB, -14.2%), Rizal Commercial Banking Corp. (RCB, -10.9%), and East West Banking Corp. (EW, -10.2%).

Other listed banks saw their share prices tumble as well, such as those of Security Bank Corp. (SECB, -9.7%), Metropolitan Bank & Trust Co. (MBT, -9.5%), China Banking Corp. (CHIB, -7.6%), BDO Unibank, Inc. (BDO, -4.5%), Asia United Bank (AUB, -3.6%), and UnionBank of the Philippines, Inc. (UBP, -3.2%).

Analysts said the mixed performance of listed banks during the period was still reflective of the developments surrounding the coronavirus disease 2019 (COVID-19) pandemic. Specifically, they point to the spike in COVID-19 infections in March, which prompted government to once again place Metro Manila and nearby provinces under an enhanced community quarantine (ECQ) from March 29 to April 11. These restrictions were later downgraded to a less restrictive modified ECQ until May 14, followed by an even more less restrictive general community quarantine albeit “with heightened restrictions” until the end of May.

PNB Senior Equity Research Analyst Wendy B. Estacio and Equity Research Analyst Marco R. Mauleon said the market “may have mixed sentiments” on the banking sector during the period.

“First, investors may have already priced in the impact of elevated provisions for credit losses on banks’ bottom line. At the same time, investors are still wary about the potential spike in non-performing loans (NPLs), as most of the banks reported NPL ratios in the first quarter were still far from their projected peak,” Ms. Estacio and Mr. Mauleon said in an e-mail.

“In [the first quarter], pre-provision operating profit of the banks we follow (except EW) grew at an average of 12% year-on-year. However, loan loss provisions increased by 51% year-on-year on the average. Net income rose by an average of 10% y/y. Meanwhile, NPL ratios of index banks (BDO, BPI, MBT, SECB) stood at an average of 2.9% against their projected peak of 4% to 5%,” they said.

Latest data by the Bangko Sentral ng Pilipinas (BSP) at that time showed the NPL ratio — or gross bad loans in proportion to total gross loans — stood at 3.61% as of end-December, easing from the 3.78% in the prior month. Subsequent data in the next few months showed the NPL ratio increasing to 3.72% in January, 4.08% in February, and to 4.21% in March — the latter being the highest since the 4.25% recorded in August 2009.

The BSP has said the ratio may go beyond 5% by the end of 2021.

Meanwhile, Regina Capital Development Corp. Head of Sales Luis A. Limlingan said subdued lending activity “continues to be the largest factor in the banks’ performance” during the period.

“Moreover, some banks have drastically reduced their provisions for soured loans this year as expected since the industry was aggressively provisioning last year in anticipation of NPL formation,” he added.

AAA Southeast Equities, Inc. Research Head Christopher John Mangun has a similar assessment, adding the trend may continue into the second and third quarter or “until restrictions are eased.”

Latest BSP data in this regard showed outstanding loans by big banks continued to shrink for the third straight month in February by 2.7%, reflecting lenders’ risk aversion and lower demand from borrowers.

In a separate central bank data, universal and commercial banks showed net interest margin — or the ratio that measures banks’ efficiency in investing their funds by dividing annualized net interest income to average earning assets — dipped to 3.49% as of March versus the 3.58% in March 2020.

Provision for credit losses on loans and other financial assets among universal and commercial banks amounted to P20.61 billion as of end-March, less than the P192.71 billion as of end-December 2020 and P23.35 billion as of end-March 2020.

Meanwhile, the big banks’ net income of P48.44 billion was around 4% lower than the P50.44 billion posted in the same period in 2020.

Analysts remain cautious over the prospects of listed banks in the next few months given current developments, but said there is still some room for investors to take positions long-term.

COL Financial Group, Inc. Senior Research Analyst John Martin L. Luciano cited a slowdown in the COVID-19 infection rate, as well as the acceleration of the vaccination program as among key factors that would drive up stock prices of listed banks.

“These would give the government room to further ease restrictions as well as boost consumer and business confidence. This would ultimately increase the demand for loans. More importantly, the further reopening of the economy would allow more businesses to operate at higher capacities which could temper the rise in NPLs,” he said.

I.B. Gimenez Securities, Inc. Research Head Joylin F. Telagen said bank stocks will “perform better” in coming months compared with last year due to base effects.

“[Listed banks] will perform better [in the second quarter] compared with the second quarter of 2020 due to less restrictive quarantine measures, mass employment of vaccines, a [sustained accommodative monetary policy], and the faster recovery of the global economy. However, there are still certain risk as there are new variants of virus,” Ms. Telagen said.

Still, Ms. Telagen said she remains to be on “watch mode” with regard to local stocks: “Technically, the PSEi is still on the downtrend, so I’m waiting for the reversal or breakout to that downtrend…,” she said.

For a fourth straight policy meeting on May 12, the BSP maintained the overnight reverse repurchase rate, lending rate, and deposit rate at 2%, 2.5%, and 1.5%, respectively. Moreover, the central bank lowered its inflation outlook this year to 3.9%, from a previous estimate of 4.2%, while that for 2022 was raised to 3% from 2.8%.

For Ms. Estacio and Mr. Mauleon, the slowdown in NPL formation as well as an improvement in asset quality indicators “should buoy investor sentiment on banks.”

Nevertheless, they said banks’ share price movements “may remain muted” given the economy remains in recession.

“As a result, banks may continue to be selective with lending and remain defensive to cushion further stresses in asset quality. However, better-than-expected trading income, cost efficiencies and other factors that may result to growth in profitability should make a strong investment case for a bank,” Ms. Telagen said.

Similarly, Mr. Mangun said a recovery in loans “would generate optimism” among investors in listed banks, but that there would still be “some weakness in the short term.”

For Mr. Limlingan, the continuous monitoring of loan demand, NPL formation, and provisions would be important in gauging the health of the banking sector amid the pandemic.

“The central bank’s decision on monetary policy will also play a part in how the banks’ balance sheet and income statement will look over the next few quarters,” he said. — A.M.P. Yraola