Investment bankers at the Bank of the Philippine Islands (BPI) anticipate a period of slower growth in terms of lending and income for the various lenders over the next two years.
BPI Trade CEO and Managing Director Michael Angelo Oyson said the banking industry is in that period when lending opportunities could prove more challenging than usual and income that make shareholder happy turn out thinner as a result.
“In my view, it’s a period of slow growth for banks. The return on equity will continue to be challenged, just in the low teens for the next two years. Margins are coming down. Trading gains have disappeared. There could be curbs to lending that might put a cap to their ability to grow,” he told the BusinessMirror.
“I want to be positive…but the trading gains have disappeared,” according to Oyson.
Consolidation in the banking industry remains an anticipated event. Among the banks, he said the top pick for possible acquisition is Security Bank.
When asked to comment on BDO Unibank, Oyson said: “I like BDO assuming there’s no merger and acquisition [M&A]. If there’s M&A, I’m concerned about the M&A risks,” he said.
“As a bank without the M&A risks, I like BDO because BDO did investments in different businesses in the last few years. Consider the way it breaks down the earnings. They are now enjoying the benefits of the investments made in the last few years. Without M&A, I like BDO,” Oyson said
In an M&A scenario, Oyson said he prefers a small bank such as Security Bank.
“With M&A, Security Bank will be able to command a high price.”
It would be trading two times the price-to-book (p/b) in an acquisition scenario.
He said the lender’s shares are now trading below 1.5 times p/b. If they are to be acquired, the owners of the bank will require a high price, he said.
He refused to comment on BPI.
No matter the lower trading gains, banks performed favorably in the third quarter as shown by the increased lending portfolio and deposit base of the various lenders.
The banks have also shown improvements in asset quality and capital adequacy.
The gross loans of universal and commercial banks rose by P783 billion, or 19.95 percent year on year, to P4.70 trillion as of end-September.
Deposits grew by P1.06 trillion, or 17.30 percent, to P 7.21 trillion.