Steadfast deposit-taking activities

Total deposits stood at P1.7 Trillion as of end-September, 10% higher year-on-year (YoY) on the back of 22% growth in low-cost deposits. CASA ratio likewise improved by 7pp from 64% to 71%. The accommodative monetary policy of the BSP, which resulted to a 200bps cut in benchmark rates, was conducive for big banks such as MBT, as funding costs went down by 100bps to 1.5% from 2.5% in 9 months (9M) 2019.

Credit costs, NPLs to stay elevated

MBT saw its credit costs rise to 300bps in 3Q 2020 – the highest among Big 3 – following the hefty loan loss provisions amounting to P35.4 Billion. We expect credit costs to remain above 80bps for 2021 amid selective lending to challenged sectors and the continued buildup in loan loss reserves. Likewise, non-performing loan (NPL) formation will be more visible this year, brought by the uncertainties in the macro backdrop and the expiration of loan moratorium.

Recommendation

Maintain BUY rating. Valuation remains cheap as forward Price-to-Book (P/B) value of 0.55x entails 47% discount from 5-year avg of 1.02x. We also expect its 2021 EPS to rebound by 30%, driven mainly by 20% growth in net interest income and higher contribution of fee-based income.

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