‘Banks should be able to manage through difficult and easy times. The challenge here is where to find growth.’
BDO Unibank Inc. president and chief executive officer Nestor Tan said BDO had been through the worst and will remain resilient, as it did during the 1997 Asian Financial Crisis, the 2007 Global Financial Crisis and the Covid-19 pandemic.
Photographs courtesy of BDO
BDO Unibank Inc. president and CEO Nestor V. Tan related the bank’s steps towards climate resilience in the Climate Business Forum: Asia Pacific, co-hosted by the Hong Kong Monetary Authority and the International Finance Corporation. At the event are Tan (right), Mushtaq Kapasi, chief representative for Asia Pacific of International Capital Market Association (center) and Chaoni Huang, head of sustainable capital markets for Asia Pacific of BNP Paribas at the Climate Business Forum in Hong Kong (left).
Despite worries about Trump’s tariffs on the local and global economy, BDO Unibank Inc. president and chief executive officer Nestor Tan is confident the bank will remain on solid ground, sustaining business growth through financial strategies and a management mindset already tested by several crises.
“Banks should be able to manage through difficult and easy times. The challenge here is where to find growth,” he said.
According to the bank’s report to the Philippine Stock Exchange, BDO’s net income increased 7 percent to P19.7 billion in the first quarter of this year from P18.5 billion in the same quarter of 2024.
Gross customer loans drove the growth, jumping 12 percent to P3.3 trillion. Loans to individual consumers posted the highest growth, at 17.3 percent.
Moving forward, Tan said consumer loans will continue to grow, although moderately, amid the country’s strong employment rate of more than 95 percent and a lower interest rate.
He projects the Bangko Sentral ng Pilipinas to ease the lending benchmark to 5 percent by year-end from 5.5 percent, driving economic growth under increased economic uncertainty due to Trump’s tariffs.
However, economists warn the public that the tariffs might speed up global inflation and slow investments as exporters pass the trade costs to consumers.
Given the risk, Tan sees consumer loans growing this year at a similar pace to that recorded a year ago, at 13 percent.
“The likely effect of the tariff wars and all these uncertainties is the economy will slow down, but that doesn’t mean it will tank,” Tan said.
Tan also said the bank will likely continue to register some non-performing loans (NPLs) as borrowers navigate the unpredictable economic environment.
The banker explained, “When you have more consumer loans, you’ll have a higher delinquency rate.”
“The problem, though, is if the banks become reckless, they will not be able to get enough return from the NPLs,” Tan continued.
Tan said BDO will likely register the same profit growth level by year-end at 12 percent due to some NPLs and the global economic slowdown brought by Trump’s tariffs.
As business leaders remain unsure of how severe the tariffs’ impact will be, Tan said BDO will remain resilient, as it did during the 1997 Asian Financial Crisis, the 2007 Global Financial Crisis and the Covid-19 pandemic.
“We expect the worst. Those three crises will happen again, but we don’t know what will start it, so we have much higher provisions than our competitors,” he said.
The bank set aside provisions of P3 billion in the first quarter, although this was lower than the P3 billion set aside in the same period last year, as the NPL ratio declined.
However, Tan said BDO is ready to expand loan loss provisions by at least 2 percent to sustain the business.
“NPLs are not a solvency problem because banks have enough capital. It will be an earnings problem, but they will survive,” he said.
“As long as the economic activity is strong, banks will do well,” Tan added.
BDO improved its NPL ratio to 1.77 percent from 1.88 percent year-on-year.
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To ensure minimal bad loans, Tan stressed that BDO would continue to lend primarily to stable and growing income earners.
“You have a steady demand on the consumer side, but the real drivers will be the middle market or medium-sized firms and large corporations,” he said.
Individual consumers increased borrowings faster at 17.3 percent in the first quarter compared to the middle market’s 12.7 percent and the large firms’ 8.7 percent.
However, Tan said companies will likely increase borrowings for the rest of the year to support long-term business growth, the government’s infrastructure program, and social projects.
“We put on hold capital expenditures during the pandemic, and we have not seen them normalizing because after the pandemic, we had the Russia-Ukraine crisis, which affected commodity prices and interest rates,” he said.
“We lend mostly to the private sector for infrastructure loans through the public-private partnerships, as the government deficits will not give a lot of flexibility to the government to prop up the economy,” Tan added.
While economic uncertainty signals drastic profit losses to specific industries, it can also mean considerable earnings to few companies that hold unique resources and niche markets.
However, Tan said BDO prefers a conservative approach.
“We tend to be a little more on the conservative side in trading because it’s a fizz in the pan affair,” he said.
BDO posted a 7 percent decline in trading and foreign exchange operations year-on-year as investors placed more funds in debt instruments before the likely reductions to the Central Bank’s policy rate.
“We’re going into the core business: intermediation, funding and lending, and services,” Tan said.
BDO plans to open 100 to 120 branches in the near term as more Filipinos in the provinces start earning higher incomes.
Tan said 80 percent of the new branches will operate under BDO Network Bank, which recently turned into a thrift bank from rural bank.
The conversion allows BDO to serve not only rural consumers and businesses, but also residents in other parts of the country and bigger sized enterprises.
Tan said the new branches will help drive BDO’s profit growth but more importantly the national economic growth.
“The growth in the Philippines will come from the underserved sector. The underserved are not poor; they just don’t have a bank,” he said.
Tan said the remaining 20 percent of the new branches will run under BDO’s commercial banking business.
“The rest will be in areas of municipalities that have grown to a certain economic level and need more sophisticated products,” he said.
According to a study by the Bangko Sentral ng Pilipinas, 25 percent of the country’s over 1,000 municipalities do not have a single branch of a formal bank.
According to the Philippine Statistics Authority, the economy of regions outside Metro Manila grew faster last year.
Central Visayas registered the fastest growth, 6.2 percent, in terms of economic output per person or the market value of the goods or services each individual produces. It was followed by the Caraga region, which posted 5.8 percent, and Central Luzon, which registered 5.6 percent.
The Sy-owned bank BDO has the country’s largest distribution network, with over 1,800 consolidated branches and more than 5,800 teller machines nationwide. It also has 16 international offices in Asia, Europe, North America and the Middle East.
