July 27, 2015

Union Bank Philippines nets P3.0b in 1H15

In a disclosure to the Exchange, Union Bank of the Phil (UBP) said that it netted P3b in 1H15, down 33% YoY. On a quarterly basis, the bank’s 2Q15 earnings were down 26% YoY and were relatively flat vs. 1Q15 earnings. Though the bank’s loan portfolio grew 30% YoY to P159b, total assets were flat YoY at P365b, as the bank’s deposits with the BSP (due from BSP) shrank by 50% YoY to P50b.

This caused 1H15 net interest income to grow by 4% YoY to P5.6b. On a quarterly basis, the bank’s 2Q15 net interest income fared better as it grew 13% YoY and 21% QoQ. Non-interest income for 1H15 was down 28% YoY to P3.5b, caused by the 60% decline in trading gains to P795m. Notwithstanding the bank’s strong loan growth, opex growth was managed at 4% YoY to P5b in 1H15.

Our take: Aside from the strong loan growth and improvement in the bank’s quarterly net interest income, what is noticeable with the bank’s 1H15 results is the shrinkage in the bank’s total assets. We view this as an attempt to focus on higher-quality and higher-yielding assets.

However, in doing this, the bank’s leverage drastically decreased from 8.0x in end-2014 to 6.5x as of end-1H15. We note that the bank’s leverage is very low, especially compared to the 8-10x range that we have seen for banks such as BDO, BPI, MBT and SECB. Moving forward, we believe that it will be important for UBP to supplement loan growth with other sources of accrual income in order to grow interest earnings faster and compensate for lower trading gains. – WealthSec