PHILIPPINE National Bank (PNB) is looking at tapping the offshore bond market in early 2027, according to its top official, who said the bank is not under pressure to raise fresh funds as it remains overcapitalized and is focused on growing its loan book.

“It doesn’t really matter for us. We can utilize both [peso and dollar]. It depends on the size. If it’s big, it tends to go offshore. It’s a good reception of foreign investors. We’re the only bank share that’s grown significantly since Jan. 1 of this year, and most of that is net foreign buying,” PNB President and Chief Executive Officer Edwin R. Bautista told reporters on the sidelines of an event on Friday.

“We’re overcapitalized. What we need is our liabilities or deposits to fund the loan expansion,” he added.

That distinction frames the plan: with capital already abundant, a new bond would be about funding loan growth through liabilities — and, if sized large enough, about testing the foreign demand Mr. Bautista says is already visible in PNB’s shares, the only bank stock to have grown significantly since Jan. 1, largely on net foreign buying.

Recent Debt Issuances

PNB last tapped the local debt market in December last year, raising P15.7 billion from the sale of dual-tranche sustainability bonds. The offering comprised P10.88 billion in three-year Series A ASEAN Sustainability Bonds priced at 5.4877% and P4.82 billion in five-year Series B ASEAN Sustainability Bonds at 5.7764%.

Meanwhile, the bank’s last dollar bond issuance took place in October 2024, when it raised $300 million from its maiden issue of dollar-denominated sustainability bonds. The transaction marked PNB’s return to the offshore debt market after years. The five-year bond carried a fixed coupon rate of 4.85% and was issued out of the bank’s $2-billion euro medium-term note program. An early-2027 deal would therefore come more than two years after that offering, which itself ended a five-year absence from offshore markets.

Mr. Bautista said PNB is hoping to issue a bond with a longer tenor, in line with its financing requirements as well as the industry’s, though this could be difficult given elevated interest rates. A longer-dated issue would stretch the bank’s funding beyond the three- and five-year maturities of its recent sales, with elevated rates making long-term money costlier to lock in.

PNB Executive Vice-President and Chief Financial Officer Francis B. Albalate said the bank still has $700 million remaining under its dollar bond shelf program and P35 billion under its peso bond program — unused capacity that sizes the headroom for whatever PNB ultimately launches.

Capital Position and Funding

Mr. Bautista said PNB’s high capital adequacy ratio of 20.3% as of end-June means the bank needs to lend more in order to lift profitability. The ratio measures capital against risk-weighted assets, and PNB’s level sits far above the 10% regulatory floor he cited — headroom that lets the balance sheet expand but weighs on returns until the funds are lent out.

“Just remember, PNB, our capital adequacy ratio is pushing 20%. I think the next highest bank is 14%. Of course, the regulatory requirement is at 10%. So, if your capital is too big, it’s hard for you to get a high return on equity. So, you really need to deploy that,” he said.

“If you want to deploy that via loans, you need to raise deposits. Normally, what banks do is, it’s going to be a mix. They go to the capital or bond market, and then partly, through better time deposit rates. If the intention is to grow the balance sheet, not all the banks will grow their balance sheet this year because some of the banks are bordering on the limit of capital,” Mr. Bautista noted.

Loan Growth and Rates

PNB expects loan growth to hold steady at 15% this year, he added, although elevated inflation and the central bank’s resulting rate hikes could pressure its asset quality, particularly for its consumer book.

Mr. Bautista said the bank initially targeted faster loan growth this year, but the current pace is still among the highest in the industry.

“Our loan growth came out to about 15%, and my budget there is higher than 15%. And yet, 15% came out higher than everyone else for the first half. It will be somewhere in that vicinity, still double-digit,” he said.

He also said PNB’s lending rates already reflect the cumulative hikes implemented by the Bangko Sentral ng Pilipinas (BSP) so far this year.

“It’s already been absorbed. The issue is the one that we’re expecting in October. Although, I don’t know if you’ve noticed, the market has priced it in already. If you look at the bond rates, the market has more or less priced it in,” Mr. Bautista said, adding that the bank expects a 25-basis-point hike at the BSP’s Oct. 22 policy meeting. That decision will help set the rate backdrop for any longer-dated, early-2027 issuance the bank pursues.

Consumer Loan Mix

The bank’s loan mix currently stands at about 8% consumer and 92% wholesale, a structure that helps cushion PNB from the impact of high inflation.

“Some of the banks are even predominantly consumer. So, I think we’re lucky that we’re in that situation because that’s the most stressed segment of the market. And within that 8%, most of it are secured loans like mortgages. Our credit cards are small as a proportion of the total. So, even if you have a market that will be distressed, the impact on us is not much,” Mr. Bautista said.

“Only 8% of our loan book is consumer. Among the top 10 banks, we have the lowest consumer as a proportion to total.”

Still, he said PNB hopes to eventually bring its consumer book to 15% of its total to take advantage of higher returns — a shift that would nearly double the consumer share from today’s 8%.

“In fact we wanted more growth in the consumer side because of the net returns margin. However, given the economic situation right now, the NPL (nonperforming loans) of the consumer are also increasing. We’ve seen from the other banks. So, it’s slowing down on the card side,” Mr. Bautista said.

He added that the bank could reach that mix in three years if market conditions become more favorable.

“But that depends if the consumer segment continues to be stressed. It’s not a hard number. If we reach it, good. If the market is not conducive, we don’t need to force it.”

Asset Quality

Mr. Bautista said the bank’s nonperforming loan ratio will be closer to the industry average this year, but pressures affecting its target market could result in a higher ratio, particularly for the credit card business.

“Because if you look at it, our market is middle class. When it comes to the middle class, their transportation component is big. They spend a lot on rice, even if the price is tripled. So, those should be monitored. Those components that matter to your target market. And where we can see the transportation cost, especially motorcycles, or cars, their gasoline costs have risen, 40-50% than before. That will be eaten by what they set aside to pay for credit cards,” he said.

He added that other banks’ move to increase their loan-loss provisioning in the first half could also be a sign that loan books are already stressed — provisions being the cushion banks build against loans that turn sour, so heavier set-asides are typically read as lenders bracing for weaker repayments.

Earnings

PNB’s attributable net income rose by 28.34% to P8.21 billion in the second quarter, bringing its first-half net profit to P14.55 billion, up 16.79% year on year — results that support management’s point that PNB’s task is deploying the capital it already holds, not raising more.

— Aaron Michael C. Sy

Source: BusinessWorld