China Banking Corporation (China Bank, stock symbol: CHIB) posted a net income of P1.16 billion (consolidated, excluding Plantersbank) in the first quarter of the year, a 35% drop compared to the same period last year amid lower trading gains. Core business showed very robust results, with net interest income up 42%, boosted by a 20% increase in interest revenues from loans and a 33% drop in interest expense. Non-interest income, excluding trading gains, grew 21%, driven by increased earnings from fee-based businesses like investment banking, private banking, non-life insurance, and remittance.
Return on equity and return on assets stood at 10.30% and 1.14%, respectively.
While earnings in the first three months were dampened by market volatility and the expected drop in trading gains, the growth of core businesses was very strong. The Bank’s loan portfolio expanded 31% year-on-year to P234.98 billion, driven by strong demand from all customer segments (49% loans growth if including Plantersbank). Deposits increased 29% to P350.93 billion, underpinned by a 51% increase in low-cost deposits (checking and savings accounts or CASA) to P142.26 billion, which now accounted for 50% of total peso deposits.
The Bank’s net interest margin improved to 3.13% from 2.74% despite tough competition and declining interest rates.
“Our first quarter profit was in line with our expectations for this time of the year. We are focusing on sustainable earnings through loans and deposits growth and strengthening other fee-based businesses, and we will work hard to meet our goals for the year,” said China Bank’s Ricardo R. Chua, senior executive vice president and chief operating officer.
As China Bank carried out its expansion program, operating expenses were controlled, rising 4% to P2.52 billion. The cost-to-income ratio stood at 63%.
China Bank’s total assets expanded 23% to P408.04 billion (China Bank and China Bank Savings). Combined with Plantersbank, the increase is 37% to P455 billion in resources as of March 31, 2014, ranking fifth largest among domestic private commercial banks in the country.
Even as the loan book showed healthy growth, asset quality further improved as close monitoring and tighter controls led to a drop in gross non-performing loans (NPL) ratio to 1.92% from 2.79%, with net NPL ratio even lower to 0.10%. Loan loss cover was hiked to 145.70% from 135.82%.
The Bank’s total capital in the first quarter stood at P45.78 billion, equivalent to a tier 1 capital adequacy ratio of 13.69%.
At its stockholders’ meeting last May 8, China Bank declared P1.00 per share or 10% cash dividend for a total of P1.59 billion and an 8% stock dividend, and increased its authorized capital stock to P25 billion.
The rights shares purchased by eligible shareholders are also entitled to the cash and stock dividends.
The Bank successfully raised P8 billion from its stock rights offering, issuing 161,609,878 shares at P49.50 per share. The shares were listed at the Philippine Stock Exchange on May 13, 2014. The fresh equity will be used to fund the growth in the Bank’s loan portfolio, branch network expansion, and technology upgrades. The China Bank Group has 450 branches to date (299 China Bank, 73 China Bank Savings, and 78 Plantersbank). The Bank is also implementing a new core banking system for roll-out in the last quarter of the year.
China Bank is the last major bank to raise capital in recent years. Since the start of its branch expansion program in 2006, China Bank has more than doubled its asset size, market reach, and branch network without having to go back to its shareholders for additional capital, until this years’ stock rights offering.
China Bank is the country’s first privately owned local commercial bank, serving the banking needs of the corporate, commercial, and retail markets since 1920. Aside from organic growth, China Bank enters into strategic alliances to expand and strengthen its operations. The Bank entered into a credit card partnership with MasterCard last year and is launching the China Bank credit cards this year. Most recently, it acquired Planters Development Bank (Plantersbank) to strengthen its presence and support to the SME sector.