Aboitiz Equity Ventures Inc. (AEV) banking segment mulls shelving off plans to expand as economic adversity continues to threaten consumers’ confidence.
AEV, the holding company of universal bank Union Bank and thrift bank City Savings Bank, feared that if the oil price increases will continue, the banks are expecting performance slowdown.
“Consumer wallets are getting hit. People are spending less. If this continues the banking sector will have to suffer,” said AEV chief financial officer Stephen Paradies.
He said although the increasing interest rates may seem positive for the banking sector as it translates to improved interest margin, it is not appealing to the consumers and hgher interest rates may only bring about consumer loan shrinkage.
Paradies hopes that the prices of oil and inflation rate will not climb further, so as not to affect a lot of sectors in the economy, including banks.
While consumers are getting hit, Paradies said people will have to prioritize expenses on basic necessity such as food, transportation, thereby affecting consumer loan facilities of the bank.
So far, however, the two banking institutions of the AEV, have posted good performance in the first quarter of this year.
City Savings Bank generated 40 percent of its consumer loan in the first three months of this year. Likewise, Union Bank had been performing very well in the same period, with double-digit growth of consumer and corporate loans.
According to Paradies, the company is cautiously monitoring the development of the economy, which strength is being threatened by the series of oil price hikes.
City Savings Bank earlier announced its expansion plans for this year, to open at least nine branches in other areas including Luzon.
If the economic difficulties will continue, Paradies said the company may re-consider some of its planned expansions. But, as of this time, there are no official changes in the bank’s expansion moves yet.
He said there is a need for City Savings Bank to expand its reach because of its stronghold in providing loans for teachers nationwide.
Its stronghold in this niche market has provided the bank’s good performance in 2007 contributing P63 million to AEV’s income, an improvement of 32 percent compared to the previous year.
The bank recorded a 44 percent year-on-year growth in loans totaling P2.5 billion while total deposits grew by 61 percent hitting P3.2 billion.
On the other hand, UnionBank of the Philippines is on constant lookout for more bank acquisitions to further boost its size, after the full integration of new acquired iBank was recently completed.
With total assets reaching P188 billion in 2007, Unionbank is the sixth largest private domestic universal bank in the country.