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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

BETTER THAN THEIR PEERS

But what does that say about Philippine banks?

By Gabelle Lam


Philippine Bank stocks market performance

PHILIPPINE BANK STOCKS look like they are in better shape than many of their regional peers. After all, the country has a fairly low level of borrowing - Philippines' total loans are 63% of GDP compared with 80% for Indonesia and 140% for Malaysia and Thailand. Interest rates have come down - the yield on the benchmark three-month Treasury bill is now 15.5%, vs. 17.5% early this year. And at 13% of their loan portfolio, the exposure of Philippine institutions to the property sector is much lower than their regional counterparts. More important, Philippine banks have more equity. The average capital adequacy ratio for Philippine banks is 16.5%, much higher than the 8% required by the Bank for International Settlements.

Still, analysts are cautious. The Philippine economy is slowing - GDP growth will be only about 1.5% in 1998 - and bad loans are rising. As a percentage of total lending, non-performing loans for listed banks are expected to increase from 2.7% last year to 10%-11% in 1998, before falling to 9% next year. Loan growth for the industry as a whole will be minimal this year, down from 15% in 1997. According to Paribas Asia Equity, listed banks are forecast to post a 7% decline in per-share-earnings this year. But they should rebound 16% in 1999.

Equitable Bank's strong balance sheet makes it the top pick in the sector, says Edgar Bancod, a banking analyst at Paribas. The bank went public in April last year, at the market peak, and proceeds from the offering almost doubled shareholders' capital to $375 million. Equitable's capital adequacy ratio is now a solid 21%. Despite hefty provisions for non-performing loans over the next two years, the bank's per-share-earnings are forecast to increase 18% through 2000, according to Paribas. "Equitable's next agenda is to leverage its expanded equity base to grow deposits," says Bancod. To do that, the bank has been enlarging its retail network, which Bancod figures will go from 137 branches in 1997 to 234 in three years.

Paribas also recommends the Bank of the Philippine Islands. BPI's profit this year is expected to be flat, which means that the bank continues to generate strong operating income and to keep non-performing loans under control. Since one-third of its $5 billion in total assets are liquid, says Bancod, "BPI is in a very strong position to acquire other banks."

An analyst at an European-owned brokerage agrees that the fundamentals of Equitable and BPI are the best among big banks. But she considers their current valuations a bit stretched. This analyst, who prefers to be unnamed, expects profit for all the listed banks to drop by a third this year because of higher loan-loss provisions, minimal loan growth and a narrower spread between funding costs and base-lending rates. But she sees a brighter future: "A 10%-15% profit rebound is do-able in 1999 on 10%-15% loan growth and a tapering off of [bad loan] provisions."

Bancod rates PCIBank as fairly valued, especially after its run-up since March. The bank's non-performing loans rose to 6.1% last year, and are expected to peak at 8.4% of total loans this year. Still, Bancod expects the bank's earnings-per-share to increase 7% a year for the next three years.

Merrill Lynch advises share-owners of the heavyweight Metrobank to reduce their holdings in the intermediate term. Merrill's Girish Kumar expects earnings this year to go down 13%-14% before bouncing back in 1999. Paribas likes Metrobank's fundamentals but recommends selling the stock as its size makes it hard to avoid loan defauts.

Chart data from when companies were listed. All money values in U.S. dollars except share prices, which are in Philippine pesos. Sources: Asiaweek Research, Bridge Information Systems, I/B/E/S


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