Monday, 29 June 2009

Philippines' UnionBank reports 44% income rise during "recession", eyes notes issue in July

Erik de la Cruz
Business Mirror

ABOITIZ-LED Union Bank of the Philippines, which plans to raise P5 billion from a Tier 2 notes offering next month, said its net income in the first five months of the year rose 44 percent over the same period last year to P1.4 billion, driven by higher interest earnings.

The bank is awaiting approval from the Bangko Sentral ng Pilipinas for its planned issuance of unsecured subordinated notes, which will be arranged by HSBC and ING. It is probably the last among the country’s biggest banks to raise additional capital this year.

In a statement issued over the weekend, the bank said its interest income from loans grew 78 percent to P2.9 billion because of its expanded loan portfolio and healthy margins.

Interest income from trading and investment securities improved by 33 percent to P1.7 billion.

As a result, total interest income increased by 42 percent to P5.1 billion.

Despite an 81-percent rise in interest expenses to P2.5 billion due to a ballooning deposit volume, the bank managed to post an 18-percent increase in net interest income to P2.6 billion.

Operating income surged by 53 percent to P1.6 billion, supported largely by the 243-percent upswing in trading and foreign-exchange gains, the bank said.

Operating expenses increased at a slower pace of 21 percent to P2.3 billion, which, according to the bank, reflected its “commitment to cost discipline and efficiency by pursuing process-improvement initiatives and developing technologically advanced solutions.”

UnionBank’s asset base stood at P212.6 billion as of May 2009, up 4 percent from P203.9 billion as of end-2008. The deposit level rose to P168.8 billion from P161.4 billion in December.

The bank managed to improve its performance in April after posting a 6.2-percent drop in first-quarter net income to P602.5 million.

“UnionBank’s year-to-date performance in 2009 is a testament to the success of our twin strategy of strengthening our core business towards a more sustainable income stream while remaining on guard for trading opportunities amid the prevailing market volatility,” chairman and chief executive officer Justo Ortiz said.

Proceeds from the issuance of Tier 2 or supplementary capital notes are expected to lift the bank’s capital-adequacy ratio (CAR)—a measure of capital strength against risk-weighted credit exposures—to at least 12 percent from 10.8 percent as of end-March.

Although the end-March CAR was still above the minimum regulatory requirement of 10 percent, the bank needs to bring it up as it intends to redeploy the huge volume of deposits it now handles mainly through aggressive lending.

The improved CAR “can support additional P50 billion in risk-weighted assets,” Ortiz said in a news briefing last month.

“With the surge in the bank’s net loans and the even faster pace in its deposit growth, Union Bank now finds itself strategically positioned to reallocate funds to higher-yielding assets, creating room for margin improvement in the second half of the year,” the brokerage said.

Union Bank, No. 8 in asset size among the country’s more than 30 universal and commercial banks as of end-March, is 36 percent-owned by conglomerate Aboitiz Equity Ventures Inc.

Its other major shareholders are pension fund Social Security System, with 23 percent, and Insular Life Assurance Co. Ltd., with 16 percent.

The bank plans to open 23 more branches this year to bring its nationwide network to 191 branches.

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