Financial Markets

SG 5 Learning Task 3
Discussion Topic
Learning Task 3

READ Assessing Bank Performance (Ch. 20-2)

Group Project: Ken Brabante, Hannah Bebs Capio, Jodel Mae De Los Santos, Sheena Marie
Montanez, Monica Liezel Mendoza

Problem

Assessing Bank Performance

Select a bank whose income statement data are available. Using recent income statement
information about the commercial bank, assess its performance. How does the performance of
this bank compare to the performance of other banks? Compared with the other banks assessed
in this chapter, is its return on equity higher or lower? What is the main reason why its ROE is
different from the norm? (Is it due to its interest expenses? Its non-interest income?)

Assessment: Chapter Review Problem

● How does the performance of this bank compare to the performance of other banks?

Bank of the Philippine Islands (BPI) has a better online and mobile banking
experience, More efficient in-branch transactions, an Online employment system, More
deposit machines nationwide, and has No services fee on intra-regional deposits and
withdrawals compared to BDO Unibank, Inc. However, the Bank has a lower Return on
Equity (ROE) compared to Banco De Oro Unibank, Inc.

The Bank's net income from 2017 to 2019 grew by a CAGR of 9.3% as net
interest income and non-interest income increased by 15.9% and 5.5%, respectively. Total
Revenues for the first three months of the year declined by 1.5% to Php 24.3 billion. Net
 Interest Income dropped by 6.5% to P16.9 billion, driven by a 31-basis point contraction
in Net Interest Margin to 3.31%. Meanwhile, Non-Interest Income increased by 12.1% to
Php 7.4 billion on the back of robust fee income, up by 27.8% to P5.7 billion.

While, BDO Unibank, Inc. recorded a net income of P44.2 billion in 2019 from
P32.7 billion in 2018 on the strong performance of its core recurring income sources. The
results exceeded the Bank’s P38.5 billion guidance and translated to a Return on
Common Equity (ROCE) of 12.8% from 10.7% the year before.

● Compared with the other banks assessed in this chapter, is its return on equity higher or
lower?

As two of the biggest and most popular banks in the Philippines, BPI and BDO are constantly
innovated to deliver quality services to their customers. The Return on equity of the Bank of
the Philippine Islands is lower than the Return on Equity of Banko De Oro Unibank, Inc.
 BPI BDO

● What is the main reason why its ROE is different from the norm? (Is it due to its interest
expenses? (Is it due to its interest expenses? Its non-interest income?)

The amount of net income earned by a corporation as a percentage of its shareholders' equity is
known as return on equity (ROE). It determines a company's profitability by demonstrating how
much net profit it can make with the money invested by shareholders.

The Return on equity of the Bank of Philippines Island (BPI) is lower than the Banko De Oro
Unibank (BDO). The reason why its ROE is different from the norm is that it is due to the
interest expenses that the bank had. The interest expenses of BDO are much higher than the BPI.
An interest expense is a cost incurred by an entity for borrowed funds. The more debt a company
has, the lower equity can fall. This can also mean that the more interest expenses a company has,
the much lower ROE is.