Lower interest rates and reduced reserve ratio requirement for banks could push net earnings up until the end of the year and through 2020.

Union Bank of the Philippines (UnionBank) is banking on the benign interest rate environment paired with lower inflation for a better performance next year. The bank is also set to kick off the third phase of its digital transformation initiative.

Executive vice president, treasurer and chief finance officer for UnionBank Jose Emmanuel Hilado said the bank is expecting the benefits of lower interest rates and reduced reserve ratio requirement for banks to push the bank’s net earnings up until the end of the year and through 2020.

The Bangko Sentral ng Pilipinas has been easing monetary policy to stimulate the economy amid global trade tensions, particularly the over year-long dispute between the United States and China, which has threatened global growth.

So far, the central bank has cut policy rates three times this year to a total of 75 basis points to four percent amid the cooling inflation. Meanwhile, the BSP is also eyeing a single-digit reserve level for big banks by 2023 from the current 14 percent, a move that will allow more legroom for lending activities.

As a result, major banks in the Philippine Stock Exchange have disclosed double-digit income growth for the first nine months, the Aboitiz-led listed lender among them.

“The benefits of that would spillover next year so we think that gross domestic product should be stronger next year. From that perspective, the outlook for next year should be better,” Hilado said during a briefing last week.

UnionBank clocked in P8.5 billion in net earnings in the first nine months of 2019, a 40 percent surge from P6.1 billion in the same period last year, driven by strong revenues from earning assets and trading gains growth.

This also comes as it enters the commercialization phase of its digital transformation journey following the kick off of its branch conversion into fully-digital branches dubbed the “ARK” this year.

Hilado said the bank has so far converted 30 of its branches nationwide into ARK, and will possibly hit more than its target of 40 converted branches in 2019.

“Eventually everything will be converted. If we have 50 (ARK branches) by this year, then next year we should do at least 50 or more until we convert the full 200 (branches),” Hilado said.

To date, the bank has spent more than P3 billion for the past three years for digitization.

Meanwhile, Hilado said the bank is also keeping watch on the Passive Income and Financial Intermediary Taxation Act bill, the fourth package of the Duterte administration’s Comprehensive Tax Reform Program. The measure seeks to simplify and equalize the taxation of passive income and the income of financial intermediaries.

“The only thing that remains uncertain is the Pifita bill, that would call for additional taxes for the banking side… It was approved by Congress, so now it’s in the Senate. We have to wait for the final form and if it’s the same then that means more taxes,” Hilado said.

“Will it reduce the earnings next year? Possibly. It could offset the increase in income next year. We don’t know.”