BDO Unibank Inc. (BDO) announced that it has set aside an additional P20 billion in upfront provisions in anticipation of the expected disruptive economic impact of the Covid-19 pandemic and the Enhanced Community Quarantine (ECQ).
The additional P20 billion provisions is on top of the P2.1 billion set aside in the first quarter of 2020.
BDO is expecting delinquencies to increase this year with the disruption in business activities, tightness in corporate liquidity, lower consumption levels, and contraction in GDP by as much as 3.4 percent based on government estimates.
As such, BDO is allocating a total of 170bps in anticipated credit costs for the effects of the pandemic. While the Bank expects an increase in the NPL ratio, actual write-offs or losses are seen to be much less.
Despite the additional provisions, BDO's capital adequacy ratio is expected to remain stable and the bank intends to continue with its regular dividend declaration.
The move, following a comprehensive review of its loan portfolio, is anticipatory in nature and is meant to safeguard the Bank's balance sheet. The bank's current NPL coverage ratio is currently one of the highest in the industry.
With these additional provisions, BDO expects that its coverage ratio will remain strong and among the highest in the industry. BDO is working with various borrowing clients to provide continuing support and find ways to navigate through this difficult operating environment. These anticipatory provisions are not expected to have an impact on the Bank's ability to service clients.
BDO's balance sheet remains strong, with capital ratios remaining comfortably above regulatory levels despite the higher provisions. The move will not impair the bank's capital.
Coupled with a robust business franchise and a culture of resilience, the bank believes it will weather the crisis and be in a good position once the economy bounces back.