Though fairly priced as of now to our target prices, we note that both BDO Unibank Inc. (BDO) and Bank of the Philippine Islands (BPI) remain fundamentally sound, and we would therefore recommend investors to buy on dips.<\/p>\n\n\n\n
With the widely-expected pause in BSP rate hikes now in the rear-view mirror, one of the central bank\u2019s next agendas is likely to be the cutting of the reserve requirement ratio (RRR). Gov. Medalla has previously stated that this could be done as early asmJune, with the goal being to bring it down to single digits by year\u2019s end (currently at 12%). In our view, this would provide another leg of upside for banks, as the added liquidity would provide stimulus for lending growth. <\/p>\n\n\n\n
We therefore believe that banking stocks will continue to hold value, even though lending rates would now be closer to their ceiling. <\/p>\n\n\n\n
The factors that we believe would underpin sustained outperformance by bot BPI and BDO would be: 1.) their prudent deposit cost management, and 2.) their high returns on equity. With competition for funding potentially getting tighter in the industry as more liquidity is funneled towards loans, deposit costs may continue to see some added uptick. <\/p>\n\n\n\n
As such, those banks with the capacity to keep these costs tempered while expanding their loan book will continue to have an edge. Both BDO and BPI ranked at the top in terms of blended deposit costs and CASA ratios. This would therefore allow the both of them to ensure that interest income from new lending outpaces the step up in costs, in turn keeping NIMs growing.<\/p>\n\n\n\n