BDO eyes 20% loan growth yearly

Posted at 07/04/2012 5:53 PM | Updated as of 07/05/2012 12:13 AM
(from left) BDO President Nestor Tan; BDO Chairperson Teresita Sy-Coson; PSE Chairman Jose Pardo and PSE President and Chief Executive Officer Hans Sicat.

MANILA, Philippines - Backed by a recent US$1 billion capital infusion, Banco de Oro (BDO) Unibank aims to sustain a 20% expansion in its loan portfolio each year for the next three to five years.

The Philippines' biggest lender, owned by the country's richest man Henry Sy, recently got a US$1-billion core capital infusion from a stock rights offering.
 
In a press briefing on Wednesday, BDO president Nestor Tan said that with BDO's fresh capital build-up, it will have room to expand risk assets in the coming years.

The briefing was held following the listing of new shares issued by BDO on Wednesday, which also marked BDO's 10th anniversary as a publicly-listed company.

Tan said they are confident of a 20% growth in the next 3 to 5 years due to the expected improvement in the Philippine economy.

BDO expanded its lending by 24% last year and had a 23% year-on-year growth in the first quarter of 2012.

More BDO branches

Tan said BDO may be able to set up 35 to 50 new local branches yearly in the coming years. "We don't look at target number of branches, but what the market requires," he said.

Tan said BDO is seeking to expand its branch network so it can reach new markets and add more servicing centers.

BDO currently has one of the largest distribution networks in the country. It has 770 branch licenses and at least 1,600 automated teller machines. It has around 5 million in retail customer accounts.

Tan said the recent $1 billion rights offering had not caused any significant change in the bank's ownership structure.

Mergers and acquisitions

Asked whether BDO was still keen on mergers and acquisitions, Tan said "only if it makes business sense." In the past, he noted that these activities were prompted by restrictions on branch licensing.

Tan said there was still no progress on BDO's offer to be the white knight of Export and Industry Bank. "We're still waiting," he said.

Unlike the situation in other countries in the region, Tan said there was more room for consolidation within the local banking system, noting that Philippine banks were still very small.

Tan said the future of its lending would be driven by opportunities.

"Ideally, we should be, at least close to equal mix between consumer middle market and large corporate. In the short term, the opportunities are more on consumer and infra (infrastructure lending) side of the business. That is what the economy requires," he said.

BDO's consumer lending business currently accounts for about 20 percent of its portfolio. The bulk is comprised of business lending.

BDO's stock rights offering resulted in the issuance of about 895.22 million in new common shares to existing investors at P48.60 each, raising P43.5 billion in core or tier 1 capital. This fund-raising also made BDO the country's largest bank not only in terms of assets (over P1 trillion) but also in terms of capital base at P145 billion.

Basel 3 requirements

BDO chair Teresita Sy-Coson said the funds raised would prepare BDO "well ahead" of stricter Basel 3 capital requirements and strengthen its tier 1 capital.

"In addition, it will put BDO in a better position to support its expansion plans," she said.

Basel 3 introduces a complex package of reforms designed to improve the ability of banks to absorb losses, extend the coverage of financial risks and have stronger firewalls against periods of stress.

Once the Basel 3 framework takes effect locally starting 2014, Tan said BDO would keep its overall capital adequacy ratio (CAR) at the "mid-teen" level. This would leave some buffer over the minimum CAR requirement of 12.5 percent.

Apart from the first objective of raising fresh capital to meet Basel 3 requirements depending on the final guidelines, Tan said a portion of the proceeds would also be used to retire P10 billion in subordinated debt or tier 2 notes maturing this November.