Metropolitan Bank and Trust Company

Metrobank is one of the three largest banks in the Philippines. Metrobank currently spans a consolidated network of over 1,400 ATMs nationwide; over 760 domestic branches; and 38 foreign branches, subsidiaries, and representative offices. The bank’s customer base covers a cross section of the top Philippine corporate market, but has always been particularly strong in the middle market corporate sector of the economy, a significant proportion of which consists of Filipino-Chinese business. It provides investment banking services through First Metro Investment Corporation (FMIC) and retail banking through Philippine Savings Bank (PSBank).

Metrobank is also a major participant in the foreign exchange market in the Philippines. Strong market position in the Philippines banking market provides economies of scale benefits. Efficient management improves profitability Metrobank’s profitability is recording growth since FY2008. Over the period 2008-11, the bank’s operating profit increased at a compound annual growth rate (CAGR) of 12. 3% to PHP48,980 million ($1,131. 4 million) from PHP34,555. 2 million ($798. 2 million). The operating profit margin of Metrobank increased to 32. 4% in FY2011, as compared to from 23. 4% in FY2008.

Similarly, Metrobank’s net profit over the period 2008-11, increased at a CAGR of 35. 8% to PHP11,031 million ($254. 8 million) from PHP4,407. 9 million ($101. 8 million). The bank’s net profit margin increased to 22. 5% in FY2011, as compared to 12. 8% in FY2008. Efficient management leads to increase in the bank’s profitability. Strong capital adequacy provides financial strength Metrobank’s capital adequacy strengthened over the period 2008-11. The company’s Tier 1 capital ratio increased to 13. 7% in FY2011 as compared to 10% in FY2008. Similarly, its total capital ratio increased to 17.

4% as compared to 13. 4% in FY2008. As per the regulatory requirements of Bangko Sentral ng Pilipinas (BSP), the risk-based capital ratio of a bank, which is expressed as percentage of qualifying capital to risk-weighted assets, must not be less than 10. 0%. Metrobank is far ahead of the regulatory capital requirement. Strong capital adequacy is providing financial strength to the bank. Weaknesses Slower growth in loans and increasing debt Metrobank’s loan book growth has been significantly lower than the growth in its debt. During 2007-11, the bank’s loan book increased at a compounded annual rate (CAGR) of 5.

7%, while deposit grew at a CAGR of 6. 5%. As a result, growth in the bank’s net interest income has been lower. Additionally, the bank’s total debt grew at a CAGR of 11. 4% during the period under discussion. The combined effect of slow growth in loans and increasing debt is putting significant pressure on the company’s financial performance. Geographic concentration augmenting the business risks Metrobank operations are concentrated in the Philippines market. For instance, in FY2011, the company derived 94. 7% of the revenues from domestic market which increases its business risk as compared to its global competitors.

Concentrated operations increase the risk of negative financial impact due to events that affect the Philippines. The concentration of operations in Philippines not only increases its exposure to local factors but also deprives the company of higher revenues from high growth markets like Asian and Eastern European markets. Opportunities Overseas expansion could help capture increasing remittance business Remittance business opportunity for The Philippines banking industry is expected to grow at a strong pace in the years to come. According to a World Bank report, Philippines was 4th biggest remittance recipient in 2010.

According to Bangko Sentral ng Pilipinas (BSP), remittances from overseas Filipino totaled $20. 117 billion in 2011, 7. 2% more than 2010. Metrobank has focused on capturing a greater share of the remittance business. Towards achieving that goal, it obtained the approval of the BSP to set up remittance centers in California and Macau. Macau is an expanding economy that is attracting a large overseas worker population and California has always been a strong market. Metrobank is estimated to have captured a 22% share of the lucrative remittance in 2011.

Overseas expansion could help the bank increase its market share further. Initiatives by ASEAN countries likely to speed up free trade A number of ASEAN member countries have taken initiatives to speed up efforts to create a free trade zone in the region in recent years. ASEAN members agreed in 1992 to create AFTA through tariff cuts under the Common Effective Preferential Tariff (CEPT) scheme with the target of 0 to 5% tariffs. Once these tariff barriers are eliminated, economies of scale will be created, making large investments economically sensible.

ASEAN countries are also trying to expedite the full implementation of the ASEAN Investment Area (AIA) from 2010 for intra-ASEAN investment. This could see a significant rise in the investment in regional markets including Philippines, which in turn could witness increase in borrowing activity in the domestic and regional markets. Metrobank looks well poised to gain from these opportunities as one of the leading banks of the country. Growing banking sector in Asia-Pacific The banking sector in Asia-Pacific is growing at a significant pace.

As per MarketLine research, Asia-Pacific banking sector grew by 12% in 2010 to reach a value of $29,618. 9 billion. In 2015, the Asia-Pacific banks sector is forecast to have a value of $40,669 billion, an increase of 37. 3% since 2010. China accounts for 47. 9% of the Asia-Pacific banking sector value. Metrobank has been present in China since 2001. In 2010, Metrobank inaugurated its wholly-owned subsidiary, Metropolitan Bank (China) Limited, the first foreign bank headquarters to be established in Nanjing. The new bank serves as the base for Metrobank’s operations in China, with three branches located in Nanjing and Shanghai.

Outside the Philippines, it has branches and offices in nine key cities spread across Asia-Pacific region: Hong Kong, Beijing, Shanghai, Taipei, Kaoshiung, Tokyo, Osaka, Seoul, and Pusan. With its wide spread branch and office coverage, Metrobank is well positioned to harness the growing potential of banking sector in Asia-Pacific region. Threats Increasing competition from rural banks could affect commercial banks’ prospects The Philippines banking industry has been undergoing a consolidation phase ever since Bangko Sentral ng Pilipinas (BSP) rationalized merger and consolidation incentives in 1998.

For the second half of 2011 alone, there were two cases of consolidation recorded. These include the consolidation of Bank of Alabang and Rural Bank of Mansalay into Banco Alabang Inc in July 2011; and One Network Rural Bank and Rural Bank of New Corella into One Network Bank in September 2011. All in all, there were five cases of merger/consolidation in 2011 involving ten banking institutions. Consolidation among rural banks is creating bigger rivals for commercial banks such as the Metrobank.

Global risk aversion could affect trading income Trading income of The Philippines banking industry contracted in 2011 by 62. 1% over 2010. Contraction in the trading income is majorly attributable to risk aversion as the global financial markets were anything but normal in 2011. Risk aversion continues to be a significant threat in 2012 as the events in the first half point to persistence in global risk aversion. This is indicated by downward revision in economic growth estimates for Europe, the US and Australasia. Consequently, trading income of The Philippines banking industry is expected to remain under pressure in 2012.

High fiscal deficit and debt levels The government is struggling to contain its fiscal deficit through reform measures. The Philippines ran a fiscal deficit of 3. 7% and 2% of GDP in 2010, and 2011 respectively. For 2012, the government targets to reach a budget deficit level of PHP290 billion ($6. 5 billion), or 2. 6% of GDP. Until the budget deficit comes down significantly, the country is expected to face problems on economic front. Consequently, the operating environment for financial services industry is expected to be challenging.