BPI warns of shrinking margins

MANILA, Philippines - The single biggest concern of corporate lenders is shrinking margins as deposit rates have remained depressed in the face of an extremely liquid market, a top bak executive said.

Likewise, top-tier corporates have opted to tap the domestic and regional capital markets to raise funds rather than take out loans from domestic banks. 

Thus, major corporate lenders such as the Bank of the Philippine Islands (BPI) are aware of shrinking net interest margins (NIMS) which, among others,  are forcing banks to go after bigger volumes. 

BPI executive vice president and corporate banking group head Alfonso L. Salcedo Jr. said that frantically chasing volumes of borrowers may result in credit quality.

 â€œNet interest margins (NIMS) are shrinking, as low interest rates on deposits are really affecting our lending,” Salcedo said, noting that banks get their funding for loans primarily from deposits. 

He added that BPI is very much aware of such a situation. 

“We are not tightening, but we are also well aware of what happened in 1997 and 2008 when credit quality was low,” Salcedo added. 

Last year, the average bank lending rate stood at only 6.34 percent.

 BPI is known as a conservative corporate lender. It does not extend huge amounts to new and untested borrowers, be it corporate or top core, middle market, or small and medium enterprice (SME).

 Last year, its average daily balance (ADB) grew 19 percent. Its modest target this year is 12 to 15 percent. 

Nevertheless, BPI is very optimistic that loan growth is still strong as it taps “new” markets. 

Salcedo said that all three sectors – top core, middle and SME – grew by double-digits last year, with the SME sector growing fastest. 

BPI reported that its total loan portfolio stood at P527 billion, of which the annual pick up of the corporate borrowers account for at least P75 billion. 

Growth in areas outside Metro Manila continue to outpace Metro Manila, and the competition has been fierce in the countryside. 

“Geographically, provincial loan growth was fastest in the past four years with no signs of slowing down,” he said. 

BPI also continues to have a large exposure to the Philippine Economic Zone Authority (PEZA) wherein their borrowings account grew by over 20-percent. 

“It is the fastest growing in terms of internal division of BPI’s corporate sector. Majority of the locators are Japanese firms heavy in exports. 

Eight-five percent of Philippine exports pass through PEZAs, which is synonmous to manufacturing. Majority of Philippine exports are electronics and the like, the bulk of which are semi-conductors. 

BPI has strong tie-ups with Japanese banks which acts as referrals to Japanese companies locating or plan to locate to the Philippines, and vice versa. And Japanese locators tap the local banking community for working and other capital. 

For 2013, agri and agri-business lending will be the major thrust. In fact, it has already introduced loan packages with a potential of reaching P12 billion.