{"id":329471,"date":"2024-09-14T18:16:32","date_gmt":"2024-09-14T10:16:32","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=329471"},"modified":"2024-09-14T18:16:38","modified_gmt":"2024-09-14T10:16:38","slug":"special-report-buy-rating-on-big-banks","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/special-report-buy-rating-on-big-banks\/","title":{"rendered":"Special Report: Buy rating on big banks"},"content":{"rendered":"\n

Our View<\/strong><\/h3>\n\n\n\n

As we note below, not all big banks have less-than-100% non-performing loans (NPL) cover. In this regard, the Big Three — BDO, BPI, and MBT — and CBC stand out with cover ratios above 100%. The same four banks, along with SECB also have better NPL ratios than the overall industry.<\/p>\n\n\n\n

We note, though, that there is limited upside for Bank of the Philippine Islands (BPI) to our Target Price of P128.42. Similarly, the recent rally in China Banking Corp. (CBC) has taken its share price above our Target Price of P42.90. With this, we have a HOLD rating on these two but we note their fundamental strengths and would advise accumulation at lower price levels. <\/p>\n\n\n\n

We remain a BUY, however, on BDO Unibank Inc. (BDO) and Metropolitan Bank & Trust Co. (MBT) based on their Target Prices of P180.18 and P83.20, respectively.<\/strong><\/p>\n\n\n\n

Analysis<\/strong><\/h3>\n\n\n\n

NPLs tick higher in July<\/strong><\/p>\n\n\n\n

Preliminary data from the BSP showed that the banking industry\u2019s gross non-performing loans (NPL) rose to 3.58% in July, its highest level in more than two years. Non-performing loans rose by 1.13% MoM \/ 15.5% YoY to P508.1-Bn in July from P502.4-Bn in June. <\/p>\n\n\n\n

We attribute this to aggressive loan acquisition by the banks as they scramble to lock in high rates ahead of the start of the BSP\u2019s easing cycle. We have also previously observed that banks have started pivoting to higher-risk consumer loans amidst tepid
demand for corporate loans, which also could have led to the steady increase in NPLs.<\/p>\n\n\n\n

NPL cover slide further away from 100%<\/strong><\/p>\n\n\n\n

The industry\u2019s overall NPL cover, or the provisions set aside to compensate for bad loans, declined for the fourth month in a row to 94.32%. NPL cover should ideally be 100%, and an NPL coverage ratio below this level could be a precursor to provisioning costs in the near future. However, it must be noted at this point that not all banks have less-than-ideal NPL cover ratios and this would form the basis of our recommendations for the sector.<\/p>\n\n\n\n

Not yet a red flag<\/strong><\/p>\n\n\n\n

We believe that the uptick in NPLs is an acceptable consequence of near-10% loan growth, especially since NIMs continued to widen in 2Q 2024 albeit at a slower pace of 9bps compared to 1Q 2024\u2019s 13bps. We expect this trend of steady increase in NPLs to around 3.8%, coupled with low teens loan growth and plateauing NIMs, as the BSP continues to unwind its tight monetary policy.<\/p>\n\n\n\n

<\/div>\n\n\n\n

This report is prepared by PinoyInvestor\u2019s partner broker below. Find out more about our partner brokers<\/a> and sign up to avail their complete trading brokerage services.<\/em><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Here\u2019s a commentary on an important issue or event affecting the stock market<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1124,11],"tags":[],"class_list":["post-329471","post","type-post","status-publish","format-standard","hentry","category-commentaries-special-reports","category-special-reports","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"_links":{"self":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/329471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/comments?post=329471"}],"version-history":[{"count":1,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/329471\/revisions"}],"predecessor-version":[{"id":329473,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/329471\/revisions\/329473"}],"wp:attachment":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/media?parent=329471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/categories?post=329471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/tags?post=329471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}