BDO Unibank Inc. (BDO), the largest Philippine lender by assets, plans to open more branches to tap the 80 percent of households without an account as it prepares for tougher regional competition, President Nestor Tan said.
BDO, controlled by billionaire Henry Sy, wants to have about 800 branches at the end of 2013 by adding 50 to its network, Tan said in an interview in Manila yesterday. Net income this year will rise, he said, declining to provide details before a shareholder meeting on April 19.
“Competition is getting to be tougher and that’s why we raised capital and strengthened our position here,” said Tan, 55. “Having a strong base here allows you to invest in your strategy.” The stock sank for fifth day in Manila trading.
Competition is heating up in Southeast Asia as banks including DBS Group Holdings Ltd. (DBS), the region’s biggest lender, seek to expand. The Philippines has become more attractive to overseas rivals because it posted the fastest growth in Asia after China in 2012, won an investment grade credit rating last week and has a low credit penetration, Tan said.
“It will be very difficult for Philippine banks to expand outside and go into other markets because they need the scale and resources for that,” said Charles Ang, an analyst at COL Financial Group Inc. “BDO’s strategy is more to protect itself from the entry of foreign banks into its home market than to go abroad.”
Malaysia’s CIMB Group Holdings Bhd. (CIMB) agreed to buy a 60 percent stake in Manila-based Bank of Commerce last year, while Malayan Banking Bhd. (MAY) said in January it will invest $100 million in the Philippines to boost branches. DBS has a 10 percent stake in Bank of the Philippine Islands.
BDO’s profit this year may surpass its smaller rival Bank of the Philippine Islands for the first time since 2008, when the Sy-controlled lender became the nation’s biggest by assets, Tan said. The bank’s profit last year rose 36 percent to a record 14.3 billion pesos ($348 million), helped by trading gains and loan growth.
Profit in 2012 exceeded BDO’s target on higher trading gains, according to a Feb. 26 statement. The loan book grew 15 percent last year to 769 billion pesos as low interest rates and accelerating economic growth boosted demand.
“We have a higher proportion of sustainable income, which is net interest income and fees, compared to the others,” Tan said. Those two account for about 80 percent of profit, compared with 60 percent to 70 percent for rivals, he said.
BDO shares have risen 18 percent this year, surpassing the Philippine Stock Exchange Index’s 16 percent gain and a 7 percent advance in Bank of the Philippine Islands. (BPI) The stock fell 1.7 percent to 85.9 pesos as of 11:46 a.m. in Manila, while the benchmark index declined 0.7 percent.
Eight in 10 Philippine households have no deposit accounts, according to Bangko Sentral ng Pilipinas’ first consumer finance survey published in April 2012.
“We see that as an opportunity to bring those outside of the banking system in, and that is growth that we don’t have to steal from other banks,” Tan said.
The lender ended 2012 with 763 branches, compared with 820 for Bank of the Philippine Islands and 828 for Metropolitan Bank & Trust Co., according to data compiled by BDO and posted on its website.
BDO sold shares in a $1 billion rights offer in June to boost capital and meet corporate loan demand as economic growth accelerates. The Philippines expanded 6.6 percent in 2012, the fastest pace in two years, and growth is forecast by the government to jump 6 percent to 7 percent this year.
Manila-based BDO has 1.24 trillion pesos in assets, a 10th of DBS Group’s. The Philippine bank is also less than a fifth the size of Malayan Banking, Malaysia’s biggest lender by assets, and less than half the assets of Bangkok Bank Pcl (BBL), the largest in Thailand.
BDO Chairwoman Teresita Sy-Coson, Sy’s eldest child, said in May 2012 that funds from the share sale will help the bank cut dependence on consumer lending. She aims to tap rising credit demand from the nation’s biggest companies, including Ayala Corp. (AC) and San Miguel Corp. (SMC), as they bid for $17 billion in infrastructure projects backed by President Benigno Aquino.
Sy, who emigrated from China at the age of 12, started selling rice, sardines and soap in his father’s Manila store in 1936. He opened a shoe store in 1948, and eventually built his business empire in the 1980s by opening malls that sold low- priced consumer goods.
He bought Acme Savings Bank in 1976 and renamed it as Banco do Oro Savings and Mortgage Bank the following year. The lender sold shares in an 1.8 billion-peso initial public offering in May 2002. SM Investments Corp. (SM), Sy’s publicly-traded company and the nation’s biggest by market value, owns about 46 percent of BDO, according to its annual report.
Sy’s retail operations, which now include 202 department stores, supermarkets, grocers and hypermarkets, provided BDO with enough customers to surpass older and bigger rivals Bank of the Philippine Islands and Metropolitan Bank (MBT) & Trust Co.
Nine acquisitions for $1.34 billion starting in 2001 made BDO the nation’s biggest lender in 2008, according to data compiled by Bloomberg.
BDO is 19 percent bigger than Metropolitan Bank & Trust by assets, the second-largest Philippine lender with 1.04 trillion pesos in assets, and 26 percent bigger than Bank of the Philippine Islands, the nation’s oldest and No. 3 bank with 985 billion pesos in assets.
Still, BDO’s market value is 19 percent lower than Bank of the Philippine Islands, which has generated higher profit every year, even after BDO overtook it in 2008 when measured by assets.
“Bank of Philippine Islands is getting a premium because of its higher profitability,” said RJ Aguirre, an analyst at Macquarie Group Ltd.’s Manila unit. “BDO, on the other hand, had to absorb costs from its acquisitions in the past while its spending on increasing market share is affecting margins.”
BPI’s net income grew 27 percent to 16.3 billion pesos last year, while Metropolitan Bank, the nation’s No. 2 bank by assets, posted a 40 percent jump in profit last year to 15.4 billion pesos. Both were higher than BDO’s earnings.
“We need a strong Philippine regional player, and we hope to be one of those,” Tan said. “We need to have a very strong base here before we’re able to use the Philippines as a springboard for regional presence.”
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