Philippine Business Bank's 1H14 earnings plunged 67% YoY to PHP258m

Weak trading is to blame.

The 1H14 net earnings of Philippine Business Bank (PBB) plunged 67% YoY to PHP258m mainly due to trading losses of PHP10m.

According to a research note from Maybank ATR Kim Eng, this translated to annualized ROE of 7% and accounted for 38% of our FY14 forecast and 35% of consensus.

It is also implied that 2Q14 net earnings fell by 28% YoY but improved 29% QoQ to PHP145m.

Here's more from Maybank ATR Kim Eng:

Core lending was robust as PBB's loan portfolio jumped 34% YoY to PHP33b in 1H14 with continued focus on SME businesses.

Net interest income tracked our estimates (49% of FY14E) as it climbed 42% to PHP1.1b.

Deposits rose 27%, driven by low-cost deposits as CASA ratio improved 5ppts to 43%. As such, NIM was better at 4.5% from 4.1% last year.

Fee-based income also grew 19% to PHP32m.

Treasury operations contributed significantly in past earnings, but with volatile interest rates, trading gains were still weak at PHP32m in 2Q14, down 72.8% YoY.

This was not enough to offset trading losses in 1Q14, thus leading to 1H14 trading loss of PHP10m, compared with gains of PHP780m in 1H13.

Provisions for credit losses eased 76% to PHP34m in 1H14 as NPL ratio improved to 2.3% from 2.7% in 1H13, while NPL cover stood out at 95.8%.

Capital remains ample with CAR of 21.31%. Meanwhile, net unrealized losses on available for sale securities in book value were lower at PHP600m from PHP917m in 1Q14 and PHP1b in FY13.