We are overweight on the Banking sector and have outperform ratings on BDO, MBT and BPI. We also highlight that the biggest beneficiaries of the BSP’s reserve rate requirement (RRR) cut are SECB and MBT.<\/p>\n\n\n\n
The Bangko Sentral ng Pilipinas (BSP) last week cut banks\u2019 reserve requirement ratio (RRR) by 250bps to 7% effective 25th Oct — in-line with our expectation. Further cuts are coming as per guidance. Recall that BSP Governor Remolona set a target to cut the RRR to 5% from 9.5% before the end of his term.<\/p>\n\n\n\n
We also highlighted earlier that the BSP need not match the 50bps rate cut by the Fed. Historically, the BSP only resorted to 50bps (or more) rate cuts during instances of economic\/market turmoil. But the current macro conditions look better with inflation slowing and GDP resilient.<\/p>\n\n\n\n
Nonetheless, we note that the real policy rate remains quite high (at 2.65%) and the BSP has enough wiggle room to cut one more than our current base case expectation of one more 25bps cut before yearend (i.e., the BSP may opt to cut by another 25bps in Dec 24 to bring the total reduction to 75bps). Recall that the BSP was the most aggressive in the region after it hiked policy rates by a total of 450bps from May 2022 to Oct 2023.<\/p>\n\n\n\n
Our sensitivity: a 100bps cut in RRR translates to additional P146 billion to be released into the system and could boost the banking sector\u2019s EPS by 2.1%-3.3%.<\/p>\n\n\n\n
Thus, we can expect some additional P365 billion to be injected into the system and average 6.2% boost in sector EPS.<\/p>\n\n\n\n