July 30, 2014

UBP’s 1H14 earnings down 49% YoY

Union Bank of the Philippines (UBP) disclosed that its net income for 1H14 reached P3.2b, down 49% YoY. This was largely driven by 82% decline in the bank’s trading gains (P988m), which consequently resulted to the 57% decline in non-interest income (P3.7b). The 29% growth in net interest income (P5.2b), which was driven by 22.5% loan growth (to P122b), was able to partially offset the decline in trading gains. The bank also continued to show healthy growth in assets (+10% YoY to P373b), and deposits (+15% YoY to P298b).

Our take: Aside from registering a sharp decline vs. last year, UBP’s 1H14 earnings of P3.2b are tracking below 2014 consensus forecasts of P7.7b. Despite delivering healthy loan growth numbers, the bank’s loan-to-deposit ratio remained very low at 41%. This suggests that the bank’s loan book is still a relatively small portion of its assets.

This is also why interest income from loans has not been able to fully offset the decline in trading gains. Further, the bank has continued to maintain a sizable available for sale (AFS) portfolio, which stood at P92.1b, representing 25% of total assets. This portfolio may be at risk to further mark-to-market losses in a rising interest rate environment. – WealthSec