What Bank of the Philippine Islands' 57% profit crash really means

Margins still under pressure.

According to Nomura, BPI released a press statement declaring 1HFY13 earnings of PHP12bn, coming in at 63% of Nomura’s and consensus full year earnings forecasts. 

On a q-q basis, the 2QFY13 earnings were 57% lower (sans the PHP6.2bn trading gains registered in 1Q13). Although loan growth, at 17% y-y,9% q-q, was above sector average (sector loan growth: 13.1% as of May), margins continue to remain under pressure, resulting in net interest income growth of 6% y-y in 1HFY13 and 5% q-q in 2QFY13.

Here's more from Nomura:

What do the results mean? The 57% q-q decline in earnings highlights the vulnerability of the Philippine bank earnings to the volatile trading gains (susceptible to yield curve effects).

Customer loan portfolio increased 17% y-y, well balanced between corporate loans (18% y-y) and consumer loans (15%y-y). However, margin pressure resulted in a net interest income growth of 6% y-y for 1H13. 

Customer deposit growth was 12% y-y resulting in overall LDR of 68% for 1H13. Current and saving account deposits (CASA) registered a strong 25% y-y growth with CASA ratio increasing to 67% from 60% a year back. 

Non-interest income growth was up 24% y-y in 1HFY13, but down 56% q-q in 2QFY13 due to absence of strong trading gains in 2Q. Fee income growth was robust at 17% y-y, while insurance related income growth was 70% y-y, on a lower base. 

Operating costs were well managed, growing at a modest 6% y-y and resulting in cost-to-assets ratio of 2.5% vs. our assumption of 2.7% for the year. 

The bank reported NPL ratio of 2.2% (2.1% in 1Q13), with provision coverage at 117% (129% in 1Q13). As per the press release, the bank reported a capital adequacy ratio of 14.3%.