China Banking Corporation (China Bank, PSE stock symbol: CHIB) sustained its profitability in the first quarter of 2021, posting 61% increase in net income to P3.6 billion. This translated to an improved return on equity of 13.4% and return on assets of 1.4%.
“We are gratified by these very positive results and by the continued support of our customers and the dedication of our employees,” said China Bank President William C. Whang.
Amid the economic downturn due to the pandemic, China Bank continued to post strong growth in its core businesses, to provide higher pandemic-related buffers, to absorb the one-time impact of the CREATE law on deferred tax assets, and to keep the growth of operating expenses moderate despite adjusting priorities for pandemic-related expenses.
Net interest income rose 16% year-on-year to P9.2 billion, mainly due to the 52% drop in interest expense, which led to a higher net interest margin of 4.2% from 3.8% in the same period last year. This was supplemented by a three-fold growth in fee-based income to P3.6 billion, driven by strong trading and securities gains of P2.2 billion.
To address potential loan defaults that may arise from a drawn out pandemic, China Bank booked credit provisioning of more than five times to P2.2 billion from P412 million in the same period last year. Consolidated NPL coverage was at 86%, with a corresponding NPL coverage ratio of 100% for the parent bank. Deferred tax asset amounting to P507 million was written down as a result of the effectivity of the CREATE law.
Operating expenses stood at P6.2 billion, up 6%, with a better cost efficiency ratio of 49%.
China Bank’s balance sheet remained healthy, with P1 trillion in assets.
Gross loans declined 3% to P572 billion as loan demand remained weak due to the lingering economic uncertainties. The Bank continued to assist customers in raising funds via corporate notes and bonds.
Gross non-performing loans ratio rose to 3.8% year-on-year from 1.7%, lower than industry average.
“We will further strengthen our liquidity position, maintain adequate capital, and enhance credit risk management while working with our customers who are severely impacted by the pandemic,” said China Bank Chief Finance Officer Patrick D. Cheng.
Total deposits rose 4% to P817 billion, underpinned by 23% growth in checking and savings accounts. CASA ratio for the quarter improved to 62% from 52%.
To diversify funding sources, the Bank issued P20 billion in fixed rate bonds in February 2021. The Bank is also planning to raise up to P100 billion over the next three years via retail bonds or commercial papers to support its strategic initiatives and expansion program, as well as the country’s economic recovery. China Bank’s total equity jumped 12% to P109 billion, with a Common Equity Tier 1 (CET 1)/Tier 1 ratio of 14.53% and total Capital Adequacy Ratio (CAR) of 15.43%.
China Bank is working through the ramifications of the pandemic by accelerating its digital transformation and embracing broader sustainability goals.