Sequential loan growth continues to sharpen<\/p>\n\n\n\n
Based on the most recent BSP data, loans for economic activities in the 4th quarter (4Q) of 2023 continued their slow ascent upwards, rising by 5.7%, up from the 3rd quarter (3Q) 2023\u2019s 5.5%. Consumer loans meanwhile stayed hot, growing even faster at 23.4% versus the prior quarter\u2019s 23.1%. <\/p>\n\n\n\n
When looking at the numbers on a sequential basis however, we noticed that the disparity in economic activity loan expansion was much more pronounced as it grew by 3.4% quarter-on-quarter (QoQ) from only 0.9% in 3Q 2023. In our view, this further reinforces the improving outlook on business spending and should bode well for the banking industry given that business-related loans account for around 70% of most banks\u2019 loan portfolios.<\/p>\n\n\n\n
To further add to the sector\u2019s good news, we also note that both non-performing loans (NPL) coverage and cost-to-income softened on a QoQ basis. This further signifies that Q4 profits likely received added benefits from 1.) slower recognition of provisioning expenses, and 2.) more sluggish OPEX growth stemming partially from lower inflationary drivers. Additionally, while NIM expansion is no longer what it once was, it should be noted that the industry\u2019s NIM still managed to improve by a very slight 2bps, though this is likely to not make much of an impact.<\/p>\n\n\n\n
With these dynamics in mind, we would like to reiterate our recommendation to investors to sell some of their holdings in BPI and transfer to BDO. In our view, we think that BDO\u2019s Q4 prospects are much rosier than what we have seen from the former. With its significant advantage in business loan market share (22.0% vs BPI\u2019s 14.7%), BDO should benefit even more from the return in business spending.<\/p>\n\n\n\n
Additionally, the Sy-led lender\u2019s heftier share of low-cost deposits should also help the bank weather funding cost pressures much better than BPI. Lastly, we think that in the coming quarters, BPI\u2019s cost-to-income has room to further worsen seeing as it will be integrating the newly-acquired Robinsons Bank\u2019s infrastructure into its own ecosystem. Already in 4Q 2023, we see its cost-to-income growth starting to outpace that of the industry\u2019s.<\/p>\n\n\n\n
At our Target Price of P169.70, BDO\u2019s upside still remains significant at 10.5%. Investors should therefore take dips in the stock\u2019s price as an opportunity to buy.<\/p>\n\n\n\n
Recommendation:<\/strong><\/p>\n\n\n\n BUY: BDO Unibank, Inc. (BDO) – Target Price: P169.70
SELL: Bank of the Philippine Islands (BPI) – Target Price: P120.72<\/p>\n\n\n\n