Maybank: Banking sector outlook now neutral - The Manila Times
Read this in The Manila Times digital edition.
MAYBANK Investment Banking Group has downgraded its outlook for the Philippine banking sector from "overweight" to "neutral" on account of declining banking loan growth and peaking of net interest margin (NIM).
"With universal and commercial banks (UB/KB) loan growth decelerating... and the anticipated NIM compression in the fiscal year 2024, we downgrade our view on the banking sector to neutral," Maybank IBG said in a report on Monday.
"The government's infrastructure programs are a potential tailwind for the sector, but we do not foresee this progress until the second half of 2024, at the earliest," it added.
Although there is potential for further growth in NIMs due to the normalization of funding expenses and a recent reduction in reserve requirements, Maybank anticipates only a slight enhancement on a quarter-on-quarter basis.
This is due to a significant portion of adjustable-rate loans having already undergone re-pricing, while the increased maximum rate for credit cards has already been experienced in the first six months of the year, Maybank said.
Meanwhile, it also noted that US bank regulators pushed for American banks to mandatorily set aside an additional 16 percent in capital, which Maybank said could "trigger regulatory tightening domestically, which could impact PH banks' profitability, discourage lending, and as a result, slow down our still-recovering economic growth."
"Nevertheless, PH banks are sufficiently capitalized to absorb potential credit and market-to-market losses," it said.
"The common equity tier (CET) requirement for US banks is 8.0 percent, which is substantially lower than the 10- to 10.5-percent requirement for PH domestic systemically important banks (DSIBs)," it added.
Banco de Oro (BDO), with a CET1 ratio of 13.9 percent as of June 2023, possesses the smallest capital cushion among the banks monitored by Maybank.
Nevertheless, Maybank said this buffer remains more than adequate, as it can sustain the growth of loans exceeding 20 percent in the next three years before necessitating a capital injection.
Maybank affirmed that within the range of banks it assesses, both BDO and the Bank of the Philippine Islands (BPI) hold the greatest potential in terms of value.
This is due to their significant pricing influence, which enables them to maintain NIMs at healthy levels even in anticipation of upcoming rate reductions in 2024.
"BDO and BPI also have the highest CA/SA (current account/savings account) ratio among peers at 75 percent and 70 percent as of the first half of 2023, making them less impacted by the still-elevated funding costs resulting from competition," Maybank said.
"Lastly, should the government push through with the PPP (public-private partnerships) projects, we believe BDO and BPI have the most appetite and scale to take on infrastructure loan demand," it added.
During the initial six months of 2023, Maybank reported that the major banks BDO, BPI, and Metropolitan Bank and Trust Co. experienced NIM expansions of 56 basis points, 63 basis points and 50 basis points, respectively.
This growth was influenced by the combined effects of adjustments in loan pricing due to policy rate increases and the raised limit on credit card interest rates.
"Earnings for the big three were largely within our consensus expectations, save for BDO's stronger-than-expected forex gains," Maybank said.
However, according to Maybank, Union Bank of the Philippines still faces challenges due to the substantial expenses linked with the integration of Citi.
In contrast, the performance of the Philippine National Bank was driven by the reversal of provisions in the second quarter of 2023.
"For the end of the fiscal year 2024 (FY24E), we expect the majority of the banks to post NIM compression as we factor in the impact of lower policy rates," the bank said.
"Still, we expect income growth of 7- to 12-percent for the big three, albeit slower than the growth seen in the end fiscal year 2022 and fiscal year 2023, to be driven by lending growth and fees," it added.
"Potential upside would be if the Marcos administration's infrastructure projects gain traction in 2024," Maybank said.
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