Philippine National Bank (PSE: PNB) closed the year 2020 with net profit before provisions for impairment and taxes of P17.6 billion, an increase of 17% year on year, driven by continued improvement on net interest income and robust trading gains amid the economic downturn due to the pandemic.

PNB’s net interest income, comprising 79% of the total operating income, increased by 11% to P35.8 billion, supported by lower funding cost which cushioned the drop in yield rates of earning assets. Interest expense on deposits declined by almost half its year-ago level despite an 8% growth in deposits to P890.3 billion as the bulk of these incremental deposits continued to be in low-cost funds, combined with the reduction in high-cost deposits, partly due to the maturity of P7.0 billion worth of Long-Term Negotiable Certificates of Time Deposit (LTNCDs). On the other hand, interest income on loans and receivables decreased by 6% as the Bank’s loan portfolio declined by 9% yearon-year to P600.0 billion. This reflected the weak demand for loans owing to economic uncertainties as well as PNB’s strategy to focus on strengthening its liquidity position by investing most of the available funds in short-term and more liquid placements to remain resilient during the pandemic.

The Bank took advantage of favorable market opportunities during most part of the year, resulting in more than three-fold increase in net trading securities gains to reach P3.3 billion from year-ago level. These gains more than compensated for the decrease in net service fees and commission income which was significantly reduced by the general decline in corporate banking transactions. In addition, the Bank waived fees on local interbank transfers and overseas remittances as an affirmation of its commitment to be an institution that can be relied on not only in terms of sustained delivery of financial services but also in easing the financial burdens of its customers in times of crisis.

Growth in operating expenses, excluding provisions for impairment and credit losses, was kept moderate at 8% as the Bank adjusted its expenditure priorities and supported pandemic-related expenses such as supplemental costs for frontline employees supporting the Bank’s operations during the quarantine period.

During this pandemic year, the Bank booked P16.9 billion in provisions for credit losses, more than 5x the year-ago level, as a pro-active approach in addressing potential delinquencies that may arise from the impact of the prolonged pandemic. Specifically, the Bank set aside loan loss reserves for severely impacted essential industries such as real estate, transportation, wholesale and retail trade as an anticipatory measure to manage its risk exposures. As a result of the loan loss provisions, net income of the Bank stood at P2.6 billion as of December 31, 2020, 73% lower against previous year.

“The economic fallout from the COVID-19 pandemic made it necessary for PNB to adopt a more prudent approach in asset deployment and recognize substantial credit provisioning which adversely impacted its bottom line in order to protect the balance sheet. However, we remain confident that these strategies, along with our planned tactical moves will ensure that the Bank will emerge from the crisis stronger in the long-run. We remain hopeful that the arrival of the COVID-19 vaccine will further open the economy enabling these challenged industries to begin the road to recovery. This will allow us to claw back our provisions in the future”, PNB President and CEO Wick Veloso said. “As the pandemic inevitably reshaped how businesses are conducted and transformed customer behavior, we are focused on exploring new opportunities, particularly in the digital space, that will translate to new revenue streams for the Bank, while at the same time mitigating the risks arising from operating in the new normal,” he added.

As of end-December 2020, PNB’s consolidated resources aggregated P1.2 trillion, up by 8% from year-ago level. The Bank’s Capital Adequacy Ratio of 15.14% and Common Equity Tier 1 Ratio of 14.47% remained well above the minimum regulatory requirement of 10%.

In September 2020, the Bank’s Board of Directors (BOD) approved the plan to realize the market value of certain real estate properties. The said plan is part of the Bank’s ongoing strategy to reduce its low-earning assets to strengthen its financial position.

Meanwhile, PNB’s achievements in the area of corporate governance did not go unnoticed as the Bank was recognized as one of the Golden Arrow Awardees by the Institute of Corporate Directors last February 19, 2021. This symbolized the continuing efforts of PNB to raise the level of compliance with the ASEAN corporate governance principles.