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Monday, October 23, 2017 | MANILA, PHILIPPINES
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   banking report
Date posted: Tuesday, February 28, 2017 | Manila, Philippines

4th Quarter Banking Report (2016)

Catering to the third-, fourth-generation clients

SOMETHING is happening at 6754 Ayala Avenue. More than the bank changing its name, let alone the JaDine (James Reid and Nadine Lustre) and DongYan (Dingdong Dantes and Marian Rivera) advertisements encouraging people to make the switch, or the growing number of branches in and out of Metro Manila, PNB Savings Bank is eyeing a new market -- the millennial crowd. The thrift banking arm of Lucio C. Tan-led Philippine National Bank (PNB) started commercial operations on Feb. 11, 1974 as First Malayan Developmental Bank. In 1986, the owner of the Calapan, Oriental Mindoro-based lender, which at the time had nine branches in the province and in selected areas in Batangas and Laguna, decided to sell to Allied Banking Corp. First Malayan changed its name to First Allied Savings Bank in 1989, after securing the license to operate as a savings bank. A year later, it was renamed Allied Savings Bank. On Nov. 25, 2014, another name change led to the present one, the result of the merger between PNB and Allied Banking, which Tan also owned. BusinessWorld researcher Christine Joyce S. Castañeda sat down with the thrift lender’s president Jovencio DB. Hernandez to discuss the bank’s plans. What follows are excerpts of the interview:

How strong is the PNB Savings Bank brand in the consumer lending market? How does the bank make itself distinct to clients?

Over the last five years, PNB Savings Bank has been rapidly gaining a strong foothold in the consumer lending business.

We do not want to fight on rates, we want to compete on the basic services and what is important to the customers. Our growth has been driven by our product innovations, wider geographical reach, capital build-up and market promotions.

A very good basis to gauge our strength is in terms of our financial performance. Let me run down some of the key indicators: Our assets of P37.6 billion ending 2016 is 20% higher than budget and 66% higher than 2015. Our loan portfolio of P30.7 billion is again 20% better than budget and 64% better versus 2015. Our deposit of P24.2 billion is 23% better than budget and 117% over 2015. Our 2016 estimated net income of P335 million (still being audited by SGV, maybe more on the upside rather than on the lowside), is 55% better than budget and double previous year’s income of P168 million.



As of the third quarter survey of more than 60 thrift banks, we are number seven on assets, seventh on loans, eighth on deposits and third on capital. In terms of capital adequacy, we are after BPI and PSBank. Because we are aggressively expanding our loan portfolio, we have to find a way to support it with appropriate funding. To do that, we need to open more branches. We started 2016 with 35 branches and ended the year with 46 branches. We also introduced a deposit raffle campaign last year that is localized at the branches to generate CASA (Current and Savings Account) deposits. It was so successful that we did Part I and Part II. Our CASA grew 15% last year.

Moreover, we want to capture as much short-term and long-term funding to support our loan growth. But because our loans are generally long term -- at least three years for auto and at least seven to 10 years for housing loan on the average -- we launched this product called Power Earner. It’s a very good time deposit product that is tax-free. It is five-year term deposit and starts at P50,000 only. This was very successful as we raised over P6 billion from this product alone.



We have repositioned our competition by offering a step-up housing loan. For a P3.5 million housing loan of 10 years, the average amortization is something like P38,000. In our case, you willl start only at P30,000 for the first two years then P35,000 in the next two years and so on. Why is it that so? Because the concept we are promoting is cash flow affordability. If you’re an employee, you’ll expect at least every year that you will have a salary increase, so we adjust your amortization as your cash flow improves. If you’re a businessman, you do not go for a business that will not grow, so we adjust your amortization accordingly. And because these are hard assets (specially land), they will increase in value. It’s the reverse for car loans. Since vehicles depreciate over time, we offer the step down loan amortization.

We are the first also to pilot digital referral program for all of our products. Our SSS Loan Program won the “Best New Loan Product” for the Philippine market in the Asian Banking and Finance (ABF) Retail Banking Awards 2016 at Singapore last year. We were also awarded by the Social Security System as the “Best Thrift Collecting Bank” even if our branch network is not as extensive as our competitors. These are just some of the things that we did and accomplished.

How did the bank perform last year? How much did it contribute to the parent bank’s net income and revenues?

On the income, we did at least P335 million based on pre-audited numbers. This is twice the comparable figure prior year. That’s our contribution.

Can you tell us what your bank has attained over the last few years?

I did a five-year analysis of some key indicators -- assets, loans, deposits, return on equity and income. From 2012, the asset base of this bank was P4.2 billion, we are now P37.6 billion which is eight times over. That translates to a compounded annual growth rate of 55%. On loans, it’s from P2.5 billion to P30.7 billion -- that’s 12 times over in five years equivalent to a 65% compounded annual growth rate. On deposits, we started at P3 billion in 2012. We ended 2016 at P24.2 billion or eight times over five years and 55% Compounded Annual Growth Rate (CAGR). On return on equity, we were at 1% in 2012; now we are at 2.95%, close to 3% -- that’s three times over. On income, from P4.7 million in 2012, we ended 2016 with about P335 million. That’s 67 times higher or at least 230% CAGR. I believe PNB Savings Bank is the fastest growing thrift bank in the industry for now.

At the start of 2017, your bank had 46 branches nationwide. Your bank said that it had planned to expand its network of branches to 60 last year to cater to more clients. What are the updates on your expansion?

Well, we were quite delayed, the issue is finding the right location. It is very difficult now to get good sites so we ended the year with 46 branches. We’re trying to do at least 25-30 branches this year. We are planning to end with about 70-75 branches by end of 2017. We will be opening three to four branches every month. Up to September, we already have a firm schedule for the first 20 branches. We just got board approval last month to open another 13 branches.

With the bank’s branches strategically located across the country, where do you see growth in consumer lending coming from?

While physical branches are important in terms of geographical reach, the way we are locating our branches is based on target market potential. In the next three years, we are seriously looking at the unbanked market and the small- and medium-sized enterprise (SME )market. On products and services, we are focusing on salary loans, multi-purpose loans and pension loans where margins are good. We booked over P300 million last year in salary and pension loans. I want to see billions of booking on these products because of high market demand. We want to focus on SME lending also. Providing support to SMEs, I think, is one way of helping grow the economy especially outside Metro Manila.

In the case of physical coverage, of course we are looking at natural markets like the key cities in Visayas, Mindanao, North Luzon, South Luzon and so on but because the mother bank already has 630 branches and growing, we collaborate with them. We do the “sandwich strategy in branch siting/location.”

Last year, PNB Savings Bank launched its digital and mobile lending facility for SSS pensioners powered by a platform called Lendr. How did this help the bank and its customers?

Lendr is an excellent origination tool. It operates on a pre-qualified basis and that is potent because we have a captive market in our over 4,000 corporate relationships and more than 300,000 payroll accounts. We’re very fast already on SSS pension. You can go to the branch and in two hours, you can get your money. With Lendr, in five seconds or ten, you can get your approval and go to the bank and get your money. If you go to the bank, in our semi-automated approach right now, it takes one hour . With Lendr, approved ka na, pupunta ka na lang sa branch para withdraw agad. Fast.

On a lighter note, why did PNB choose JaDine and DongYan as celebrity endorsers?

Perfect choices. PNB, being the mother bank, is seen already as very matured, very stable but mostly appeals to the first and second generation only. We are missing on the third and the fourth generations., DongYan is the epitome of a young couple while JaDine are typical millennials. This was well-researched. Our new target markets could relate very well with them so they are perfect choices for PNB.

What are your prospects for expansion across the Philippines? What are the factors that determine where to expand?

While we aim for wider geographic coverage, what is a more strategic consideration is market potential. We will go and expand where the market is. For example, on the deposit-taking side, 70% of the deposit is in Metro Manila and we have only two branches. It’s very expensive to get a license here. For a thrift bank like ours, we have to pay P15 million, excluding the P5 million, to put up a branch and the P5 million annual expense to maintain a branch, so P25 million over all. But we need that, it’s necessary so we got approval to at least get additional licenses in restricted areas. We will be going to San Juan, Pasay, Manila, Ortigas, Mandaluyong -- we’re looking at those locations.

What is your outlook for the bank? By how much do you expect PNB Savings to contribute to the parent company this year?

We are positive for 2017. We are looking at a robust double digit growth in our bottomline.

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