Philippine National Bank’s profitability to improve on more SME loans

Liquidity is expected to decline as it accelerates lending in 2024.

Philippine National Bank’s (PNB) profitability is improving following a “significant” net interest margin (NIM) expansion and lower provisioning costs in 2023, reports Moody’s Ratings.

PNB’s NIM rose to 4.2% in end-2023 from 3.6% previously, which the bank attributed to its fund management as well as higher asset yields. 

However, its yields reportedly remain the lowest amongst domestic Philippine banks rated by Moody’s.

Credit costs improved to 0.9% from 1.2%.

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Lending margins have increased thanks to PNB’s expansion to “higher yielding small and medium enterprise (SME) and retail segments,” Moody’s noted, which will balance the higher credit costs in these portfolios. 

PNB’s return on assets is expected to hover at around 1.5% over the next 12-18 months.

The bank’s nonperforming loan (NPL) ratio was a stable 7.3% as of end-2023, an improvement from the 10.8% in 2021, although slightly higher than the 7.2% in end-2022.

The bad loans ratio is expected to further decline in 2024, but will still remain above pre-pandemic levels over the next 12-18 months. This is due to risks arising from unseasoned loans in its expansion into the SME and retail segments; and PNB’s continuous clean-up of its pandemic-related NPL exposures.

“Its capital will decline to a still-strong level as its loan growth accelerates over the next 12-18 months,” Moody’s said in its latest ratings report on PNB, where it reaffirmed Baa3/P-3 long-term and short-term foreign currency and local currency deposit ratings.

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Funding remains a credit strength to PNB, according to Moody’s. The bank has lower cost of funds compared with the big three Philippine banks, despite an elevated interest rate environment.

However, liquidity will decline mildly from the current high level as loan growth accelerates over the next 12-18 months.