BDO hikes provisions by 1,000% on expected rise in delinquencies

BDO Unibank Inc. took a preemptive strike as the economy nears stalling after nearly three months of lockdown by expanding its buffer for bad debts that the bank expects to increase this year.

After evaluating its loan portfolio, the Sy-led bank said it found it prudent to allocate P20 billion in provisions, in addition to over P2 billion earmarked during the first quarter.

“The Bank is expecting delinquencies to increase this year with the disruption in business activities, tightness in corporate liquidity, lower consumption levels and contraction in [economy] by as much as 3.4 percent based on government estimates,” BDO said in a disclosure on Monday.

The listed bank underscored that its move to hike provisions by 1,000 percent was inevitable given the current situation and should be seen as a protection for the balance sheet.

BDO shares fell by 1.39 percent, or P1.40, to end at P99 each amid the 1.56-percent uptick for the main index on Monday.

But by increasing allowance, BDO said that it was expecting its nonperforming loans (NPL) coverage ratio to remain robust.

BDO set aside 170 basis points in anticipated credit costs but noted that actual write-offs or losses are likely to be much less.

“BDO’S balance sheet remains strong, with capital ratios remaining comfortably above regulatory levels despite the higher provisions,” the bank said. “The move will not impair the Bank’s capital.”

“Despite the additional provisions, the Bank’s capital adequacy ratio is expected to remain stable and the Bank intends to continue with its regular dividend declaration,” it said.

In separate disclosure, BDO approved the declaration of regular cash dividends on common shares, the second time this year, amounting to 30 centavos apiece for the second quarter. These are payable on June 29.

The Sy-led bank saw its first quarter earnings decline by 10.20 percent to P8.8 billion from P9.8 billion in the same period last year due to trading and foreign exchange losses.

Customer loans rose 11 percent to P2.2 trillion on continued growth across all market segments while total deposits increased 9 percent to P2.6 trillion in the first three months.

The bank’s total capital base rose to P372.2 billion in the first quarter, booking capital adequacy ratio of P13.8 percent and common equity Tier 1 of 12.7 percent.