Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

<ul>
<li>* BDO Unibank (BDO.PM) [BDO] reported 4Q21net income of PHP 11.0 bn, a PHP 1.0 bn (10.0%) linked quarter increase, driven by surprisingly positive operating jaws; </li>
<li>The level of net new NPLs declined PHP 319 mn or 1.7% on an annualized basis which is a wonderful turn of events for BDO; and</li>
<li>By our calculation, BDO’s reserves appear fine where they are provided credit quality doesn’t reverse course -suggesting earnings strength on the horizon.</li>
</ul>


* BDO Unibank (BDO.PM) [BDO] reported 4Q21net income of PHP 11.0 bn, a PHP 1.0 bn (10.0%) linked quarter increase, driven by surprisingly positive operating jaws; 
The level of net new NPLs declined PHP 319 mn or 1.7% on an annualized basis which is a wonderful turn of events for BDO; and
By our calculation, BDO’s reserves appear fine where they are provided credit quality doesn’t reverse course -suggesting earnings strength on the horizon.


<ul>
<li>
Another Fraud In The Philippines: Nearly 700 BDO Unibank customers have reported unauthorized account transactions of between PHP 25,000-PHP 50,000 with accounts at UnionBank of the Philippines (UBP PM);</li>
<li>
Small Risk:Assuming that the affected customers are capped at 700, losses from this incident would amount to USD 700,000 – well under 1% of consensus forecasts for 2022; and</li>
<li>
Weak Fundamentals: Net new NPLs increased an alarming PHP 17.8 bn or 115.8% annualized.  BDO’s reserves are light in the neighborhood of PHP 66 bn or six quarters of results.</li>
</ul>



Another Fraud In The Philippines: Nearly 700 BDO Unibank customers have reported unauthorized account transactions of between PHP 25,000-PHP 50,000 with accounts at UnionBank of the Philippines (UBP PM);

Small Risk:Assuming that the affected customers are capped at 700, losses from this incident would amount to USD 700,000 – well under 1% of consensus forecasts for 2022; and

Weak Fundamentals: Net new NPLs increased an alarming PHP 17.8 bn or 115.8% annualized.  BDO’s reserves are light in the neighborhood of PHP 66 bn or six quarters of results.


Bank of the Philippine Islands / Equity Bottom-Up

*Credit Leverage On Its Way: Bank of the Philippine Islands (BPI.PM) [BPI] reported 3Q21 results of PHP 5.7 bn, declining PHP 1.1 bn (16.6%) linked quarter. While results were down linked quarter, what impressed us most was how well controlled credit metrics appear to be; and*Significant Credit Improvement: Our net new NPL figure of PHP 152 mn or 1.5% annualized (65.4% at 4Q20) intimate that management may actually be on to something. Given where BPI and the Philippines are with credit, it would not surprise us in the least if BPI reverses loss reserves.

*Credit Leverage On Its Way: Bank of the Philippine Islands (BPI.PM) [BPI] reported 3Q21 results of PHP 5.7 bn, declining PHP 1.1 bn (16.6%) linked quarter. While results were down linked quarter, what impressed us most was how well controlled credit metrics appear to be; and*Significant Credit Improvement: Our net new NPL figure of PHP 152 mn or 1.5% annualized (65.4% at 4Q20) intimate that management may actually be on to something. Given where BPI and the Philippines are with credit, it would not surprise us in the least if BPI reverses loss reserves.

Bank Of Philippine Islands – Asia’s Top Performer

*Poor Results: BDO Unibank (BDO.PM)[BDO] reported 4Q20 net income of PHP 11.3bn, a PHP 1.0 bn (8.5%) decline linked quarter. Highlighting the linked quarter result we note that loss provisions increased PHP 5.0 bn (360.8%) reflecting the continued breakdown in credit quality;  Credit Risk Rising: Not including the doubling of restructured loans, the level of net new NPLs increased PHP 17.8 bn or 115.8% on an annualized basis which is alarming considering the 67.9% annualized increase at 2Q20.  By our calculation, BDO’s reserves  - at a minimum  - are light in the neighborhood of PHP 66 bn or six quarters of bottom-line results.   This is particularly disturbing as BDO is amongst the most trusted banks in the Philippines and ASEAN, and this certainly calls into question what competitor loan and securities portfolios look like; and *Capital Raise Potential: Assuming that our provision analytics are correct, we find that BDO’s CET1 ratio would decline 13.2% to under 11.0% - raising concerns of a capital raise given BDO’s unrealized losses at hefty restructured loans, BDO Life, decelerating loan growth, narrowing margins, and trading volatility.

*Poor Results: BDO Unibank (BDO.PM)[BDO] reported 4Q20 net income of PHP 11.3bn, a PHP 1.0 bn (8.5%) decline linked quarter. Highlighting the linked quarter result we note that loss provisions increased PHP 5.0 bn (360.8%) reflecting the continued breakdown in credit quality;  Credit Risk Rising: Not including the doubling of restructured loans, the level of net new NPLs increased PHP 17.8 bn or 115.8% on an annualized basis which is alarming considering the 67.9% annualized increase at 2Q20.  By our calculation, BDO’s reserves  - at a minimum  - are light in the neighborhood of PHP 66 bn or six quarters of bottom-line results.   This is particularly disturbing as BDO is amongst the most trusted banks in the Philippines and ASEAN, and this certainly calls into question what competitor loan and securities portfolios look like; and *Capital Raise Potential: Assuming that our provision analytics are correct, we find that BDO’s CET1 ratio would decline 13.2% to under 11.0% - raising concerns of a capital raise given BDO’s unrealized losses at hefty restructured loans, BDO Life, decelerating loan growth, narrowing margins, and trading volatility.

BDO Unibank – With This Level Of Risk, A Capital Raise Can’t Be Too Far Behind

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

President Rodrigo reportedly was very upset with the Kuwait government after the incident that left the 29-year-old Joanna Demafelis, an OFW, dead and found in the freezer in a Kuwaiti flat last earlier this month. The Philippine foreign affairs department mentioned on Monday, Feb 12 that they will ban new employment in Kuwait, including Filipinos who had already obtained employment permits but had not yet left for Kuwait. The Philippine government would shoulder the cost for the migrants'…

President Rodrigo reportedly was very upset with the Kuwait government after the incident that left the 29-year-old Joanna Demafelis, an OFW, dead and found in the freezer in a Kuwaiti flat last earlier this month. The Philippine foreign affairs department mentioned on Monday, Feb 12 that they will ban new employment in Kuwait, including Filipinos who had already obtained employment permits but had not yet left for Kuwait. The Philippine government would shoulder the cost for the migrants'…

OFW Exiting Kuwait? Impact on the Philippine's Economy

Philippines

Philtrust Bank provides various commercial banking products and services in the Philippines. The company offers checking accounts, savings accounts, time deposits, money market placements, business loans, transfer of funds and collections, remittances, securities investments, and safety deposit boxes. It also provides commercial letters of credit, collections and remittances, foreign exchange services, traveler�s checks, and foreign currency deposit unit transactions. In addition, the company offers trust services, such as trust placement, investment management, estate administration/trustee of bond issues, savings and pension plan administration, and insurance trust services, as well as acts as escrow agent, and stock registrar and transfer agent. It operates a network of approximately 57 branches and 57 automated teller machines. The company was founded in 1916 and is headquartered in Manila, the Philippines.

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Philtrust Bank (PTC PM)

BDO Unibank – Ready to Run

BDO: BDO reported a QOQ 4Q21net income increase of 10.0%, driven by surprisingly positive operating jaws. Net new NPLs were negative, and reserves...

Thomas J. Monaco

BDO Unibank – Small Hit, Big Problem

BDO UNIBANK: Nearly 700 BDO customers have reported unauthorized account transactions. Losses are small, but reputational risk is high. Add this...

Thomas J. Monaco

Bank Of Philippine Islands – Asia’s Top Performer

BANK OF PHILIPPINE ISLANDS: BPI reported QOQ 3Q21 results declined 16.6%. What impressed us most was how well controlled credit metrics are. It...

Thomas J. Monaco

BDO Unibank – With This Level Of Risk, A Capital Raise Can’t Be Too Far Behind

BDO UNIBANK: BDO reported a 4Q20 net income decline of 8.5% linked quarter. The level of net new NPLs increased 116% with reserves light by PHP 66...

Thomas J. Monaco

OFW Exiting Kuwait? Impact on the Philippine's Economy

President Rodrigo reportedly was very upset with the Kuwait government after the incident that left the 29-year-old Joanna Demafelis, an OFW, dead...

Henry Soediarko

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