China Bank Savings sees modest loan growth as price risks linger

CHINA BANK SAVINGS (CBS) expects modest loan growth for the rest of the year as consumer spending may stay weak as inflationary pressures are likely to persist even with tensions in the Middle East beginning to ease.

“Depending on the kind of portfolio where you are in, we believe the growth will be modest rather than good growth. And for that, we told ourselves we are not expecting big growth.

And modest growth is good enough for us. Most importantly, we have to safeguard the quality of the assets,” CBS Chairman Ricardo R. Chua said at a briefing on Thursday.

CBS President James Christian T. Dee added that even as higher prices dent consumers’ purchasing power and ability to settle their loans, the thrift bank still aims to improve its asset quality by the end of the year as markets have calmed down after the United States and Iran signed an interim deal that could end a near four-month war that has affected global economy.

The bank’s nonperforming loan ratio stood at 2.9% as of end-March.

“We’re actually targeting to improve on this number by the end of this year. So, hopefully the new developments, just even as early as this morning, will help calm the market and help us lower this ratio,” Mr. Dee said.

He said CBS wants to increase its loan loss provisions to cover 90%-100% of their portfolio over the next three to five years as they expect the Bangko Sentral ng Pilipinas’ (BSP) ongoing tightening cycle to erode borrowers’ repayment capacity. In the first quarter, the bank doubled its provisioning from the year-ago period.

“For interest rates, we’re quite aware of the possible uptick in the next few months. However, with the recent developments in the Middle East, we’re hoping that the rise in interest rates will be tempered. But despite all of this, we’re always prepared for rate movements, whether up or down. We’re always very prudent in our expansion and the way we extend loans for our clients,” Mr. Dee said.

He added that CBS’ current loan mix can protect the bank’s margins from potential rate hikes.

“Right now, we’re mostly focused on retail loans, small-ticket loans for multiple clients, and we have measured exposure to big clients. So, with this approach, we feel that our expansion strategy should protect the bank from any adverse effects on interest rates.”

Mr. Chua added that the bank’s plans to expand its network could help bring in more deposits to fund its loan.

“Usually, the lending rates for those clients are relatively stable. They’re not as rate sensitive as big corporate clients. And furthermore, on the funding side, on the deposit generation, as mentioned, we continue to expand our infrastructure. With this, we’re actually able to source more funding for our loan generation. So, this actually will help temper any rise in deposit rates, because we try to expand our infrastructure and generate more deposits for our lending.”

Mr. Dee said CBS targets to increase its branch network by 15 annually for the next five years, including 10 conversions to full branches from branch-lite units and five new branches yearly.

CBS’ net income rose by 11.5% to P631.2 million in the first quarter, driven by sustained core business growth. — Aaron Michael C. Sy