Nomura predicts slower profit growth for Philippine banks

Investors are urged to cut their holdings in Philippine banks.

Nomura Holdings Inc. said Philippine banks will rank near the bottom in earnings growth despite expectations the Philippine economy will be Southeast Asia’s fastest growing this year.

Nomura told investors that Philippine banks have extremely high valuations and face slowing profitability and a downside in earnings from tax and foreign-exchange risks.

Nomura has an underweight position on Philippine banking stocks. It has a “reduce” rating on BDO Unibank Inc., Bank of the Philippine Islands, Metropolitan Bank and Trust Company and Philippine National Bank. Only Security Bank Corporation has a “neutral” rating.

“With volatile and low-quality investment and forex gains now at 55 percent of pre-tax profits from 18 percent in 2008, the downside risks to earnings are significant, in our view. Philippine banks have also benefited [from] a falling tax rate, which we expect to reverse,” Nomura said.

Banks covered are trading at 19 times earnings this year and 2.1 times book value that Nomura considers very high, given growth and profitability.

Nomura predicts slower growth for ASEAN banks this year. It said ASEAN banks are expected to post an average earnings growth of 13% in 2013 compared to the 17% growth the year before.