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Lender income dips on DepEd, rate change

TDT

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The Union Bank of the Philippines (UnionBank) reported net income 13 percent lower in 2018 than the year before, the expected result of a development that effectively prevented a subsidiary lender from doing what it does best.

“UnionBank booked a net income of P7.3 billion for 2018, down 13 percent from the P8.4 billion it recorded last year due to higher interest rates and its subsidiary CitySavings’ temporary inability to issue loans for teachers,” UnionBank said.

This relates to a Department of Education order suspending the agency’s Automatic Payroll Deduction System allowing lenders like UnionBank subsidiary CitySavings to subtract teacher loan and insurance payments from their monthly paychecks.

That suspension lasted six months and initial hopes of making up for lost time in the second half last year were dashed when it became apparent that a parallel event, involving a series of policy interest rate adjustments would make lending as a whole a more expensive exercise for borrowers like the nation’s teaching force under the DepEd.

Bank lending, pushed progressively higher by adjustments in the rate at which the Bangko Sentral ng Pilipinas borrows from or lends to the various banks, averaged as low as 5.353 percent in February last year but ramped up rather quickly to as high as 6.64 percent in November food supply restrictions compelled the monetary authorities to respond with interest rate adjustments to quell above-target inflation.

But even as the lending community struggled to push for greater loan activities in the face of more expensive funding costs, UnionBank endeavored to achieve higher equity that translates to a bigger book value for its shareholders.

“Total income taken to retained earnings amounted to P8.5 billion, inclusive of adjustments related to the adoption of Philippine Financial Reporting Standards (PFRS) 9 — the new standards of reporting for banks that took effect last year,” it said.

UnionBank reported an increase in total assets reaching P674 billion, a sharp uptrend from only P622.1 billion in 2017.

“Customer loans increased by 16 percent year-on-year to P321.6 billion, with retail loans accounting for 33 percent of total loans. All customer businesses, except CitySavings, posted double-digit growth in volume,” the bank said.

The lender expressed optimism to perform better in 2019 as they expect margins to improve as assets reprice.

“The strong performance of key business segments provided the cushion to the margin compression arising from interest rates. The bank expects margins to be better this year as assets reprice,” UnionBank said.

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