From AB Capital's The Opening Bell: Three Moves
Event
The Bangko Sentral ng Pilipinas (BSP) said higher provisioning is being driven mainly by expanding consumer credit, particularly cards, rather than broad-based asset quality stress. Consumer loans grew 17.1% YoY in July and credit cards 24.5%, while the system non-performing loan (NPL) ratio remained manageable at 3.35%.
View
We think this broadly validates our view that the current credit cycle is more portfolio-specific than systemic. The key concern is NPL formation in faster-growing unsecured books, where seasoning and weaker household conditions can push provisions higher even if headline system NPL ratios remain relatively stable.
Catalyst
As an illustrative sensitivity, a 50bp increase in the provisioning rate applied to the P1.304 trillion credit card portfolio would add about P6.5 billion of annual provisions system-wide. The actual impact depends on delinquency formation, reserve releases and portfolio mix, but consumer-heavy banks would face greater earnings sensitivity.
Action
In our view, this reinforces preference for banks with stronger coverage, diversified corporate exposure and capacity to absorb provisioning without compromising growth (BDO is our top pick). We would focus less on the headline 3.35% NPL ratio and more on new NPL formation, card delinquencies, reserve coverage and quarterly credit cost trends.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.