BANK  OWNERS  STRUT  AS  RETURNS  ON  EQUITY  RISE

MANILA, MAY 14, 2007
(MALAYA) By MAX ESTAYO - DIVIDEND HARVEST REMINISCENT OF PRE-CRISIS DAYS - If bankers walk with a little more spring these days, watch their stockholders strut.

Earnings are high and returns on equity are higher.

Bangko Sentral ng Pilipinas deputy governor Nestor Espenilla said returns on equity have risen from record lows after the Asian financial crisis.

Last year, he said the average ROE was 10 percent from just 2 to 3 percent after the crisis.

During the first quarter, there has been a spate of dividend declarations from the countryís top conglomerates and banks are the first to reward their owners.

Banks last year posted profits of P54.2 billion, a huge pie for a couple of hundred of investors to share.

Banks, Espenilla said are going back to health, but he prefers them to be more profitable, saying the ratio should be in 14-15 percent range, the ratio prior to the crisis.

Of the banks, the Development Bank of the Philippines posted the highest returns on equity of 17.16 percent.

Security Bank posted 17 percent in end-2006, the second highest among local banks. BPI was fourth with 16 percent and China Bank fifth with 15.94 percent.

Metrobankís ROE stood at 10.38 percent.

Just this month, Metrobank declared a P.60 cash dividend, following a similar windfall announced in December. Union Bank of the Philippines declared P1.60 while China Banking Corp. said it will give P25 cash and 25-percent stock dividends.

A month earlier, Security Bank disclosed a P.75 special and P.25 regular cash dividends. Bank of the Philippine Islands announced P.90.

Ayala-owned BPI was the most prolific in the last two years, giving an unprecedented P1 in special cash in October alone last year.

Metrobank never missed giving dividend payments since 2001 and declared a record P.60 cash windfall in 2005.

In 2005, Henry Sy-controlled China Bank announced a P35 cash and 35 percent stock dividends, its highest on record.

Paul Joseph Garcia, chief investment officer of ING Investment Management Office, said the pattern is reminiscent of the pre-Asian crisis period.

"Dividend payments were strong in the 90s. Now is the only time again that companies are giving back to investors, distributing cash from retained earnings and accumulated profits," Garcia said.

Dividends paid in cash actually have the effect of curtailing the capital base. Dividends are given only after provisioning and taxes.

The Asian crisis in 1997 was probably the darkest period in the history of banks, when keeping sufficient capitalization was a daily challenge.

"Before, they needed to do more provisions because of their high non-performing loan rates. Now, thereís much not need for provisioning, so thereís more leeway to give back to shareholders," Garcia pointed out.

It also helps that after disposing of their non-performing assets, banks holding on to prized real estate properties are enjoying a property boom.

Philippine National Bank, saddled with so many foreclosed properties is now developing these properties through its newly formed sister company, Eton Properties.

Meanwhile, Security Bank, often the target for acquisitions, was also very active in dividend payments in the last two years, giving both regular and special cash payments.

It gave a total of P.50 regular and special cash dividends in 2005, and an aggregate P.75 regular and another P.75 special dividends last year.

From P293.8 billion in March 2002, universal and commercial banks cut the NPL base by nearly half to P117.5 billion in December 2006, data from the Bangko Sentral ng Pilipinas showed.

Non-performing assets fell to P276.6 billion last year from P456.7 billion in June 2002.

This somehow eased provisioning requirements, with loan-loss reserves down to P97.2 billion last year from a high P136.7 billion in June 2002.

Universal and commercial banks also showed remarkable improvement in capitalization to nearly P500 billion in December 2006 from a low P348.5 billion in March 1999.

Alex Escucha, vice president of China Bank, said dividend declarations pace revenue growth.

"Itís a reflection of record incomes," he said, noting the lenderís own experience.

In 2004, the bank gave dividends in the form of 20 percent stock and P5 cash on net income of P2.8 billion. That climbed to P3.2 billion in 2005, resulting in cash and stock dividends of P35 and 35 percent.

Last year, the bank rewarded its shareholders with P30 cash and 25 percent stock dividends when net profits surged to P3.5 billion.

China Bank ended 2006 with capitalization of P23 billion, sufficient for a bank of its size that has very manageable risk exposures. Its NPL burden stood at single-digit 6.5 percent in end-December from a high 15.5 percent in Septem

ber 2000.

Cash dividend payments, whether regular or special, are not mandatory depending only on the financial health of a company, Garcia said.

He cited the case of BPI, which has been profitable while loan-loss provisioning is low Ė its NPL burden had fallen to P7.6 billion or 6.5 percent in end-December from a worrisome P22.3 billion or 14.5 percent in September 2000.

Curiously, Equitable PCI Bank, the third largest lender, stopped giving dividends after the P.60 cash dividend in January 2005.

The bank actually hung on a cliff that year, with its capital adequacy ratio of 9.7 percent falling below the required minimum 10 percent.

Its merger with Syís Banco de Oro Universal Bank saved it from a potential crisis Ė it was advised by ING Bank to beef up capitalization by at least P1 billion last year.

Garcia said dividend payments send a very positive signal to both the investor and depositor, and to the public in general.

"It shows the financial health of a company, the cash flow and earnings are stable," he said.

"If you give away cash, you are really earning. The market sometimes rewards you through the good prices of your stocks," he added.

Escucha said while dividend payments are always optional, investors look at it as cash flow.

Sometimes, investors with long-term horizon choose to invest back their earnings to help the bank finance future expansion, he said.

Escucha said China Bank has one of the highest dividend yields, estimated at 3.8 percent.

"Thatís better than bank deposit. Even for some investors, two percent is already a good yield," he said.

The bankís large capitalization, which currently translates to a capital adequacy ratio of 28.35 percent sufficient to meet Basel 2, has allowed it to earn an investment-grade "AA-" rating from Fitch, Escucha said.

"This is confidence building for depositors and investors. It is a source of comfort because we donít need to raise additional capital," he said.

Garcia said dividend payments enhance the banksí average return on equity, an indicator of profitability determined by dividing the net income in a year by the common stockholders equity.

Itís not surprising that the banks that were most visible in dividend payments were among the highest ranked in terms of ROE.


Chief News Editor: Sol Jose Vanzi

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