Equitable-PCI Bank loan growth impressive

Equitable-PCI Bank is estimated to realize cost savings of about P1 billion for 2001 due to its merger gains, an industry study shows.

In a latest study, ING Barings said this cost savings should help Equitable-PCI Bank achieve some 89 percent earnings growth to P3.2 billion and return-on-equity to recover to double digit rates to 13 percent from only nine percent in 2000.

"Its merger has also proved to be highly complementary. Note that EBC’s strength in the middle market is a good fit with the old PCI Bank’s strength among the large corporates," it said.

According to ING Barings, EBC also has impressive loan growth for the past months. "EBC reported nine percent year-on-year growth in loans to P125 billion as of the third quarter, the best among the large banks," it noted.

However, ING Barings said their main concern is that credit demand was not broad-based, but primarily came from large corporates.

"The source of loan growth also explains why interest margins declined by an estimated 20 basis points quarter-on-quarter to 3.6 percent," it said.

The research firm also noted that EBC’s non-performing loan (NPL) ratio declined to 11.6 percent in the third quarter of 2000 from 12.5 percent in the second quarter, defying the sector, which reported slight increases.

"We believe this can again be attributed to the successful merger exercise and EBC’s stringent credit criteria," it said.

But, ING Barings warned that the low NPL scenario might not be sustained. "This is unlikely to be maintained should interest rates remain high," it said.

It said the sentiment on the bank’s condition should improve soon. "We believe negative sentiment towards EBC, sparked by its chairman’s connections to the current political scandal, will eventually die down," it added.Equitable-PCI Bank chairman George Go recently resigned from his post as chairman and was replaced by Ricardo Romulo of the Makati Business Club.

ING Barings noted that the public should consider that the management of the bank is highly dependent on the company president Wilfrido Vergara. "George Go is not heavily involved in management, leaving Vergara to freely run EBC," it said.

Vergara is a highly respected career banker who joined EBC in the mid-90s to professionalize management.