Asia United Bank (AUB), a 15-year-old commercial bank, joined the ranks of the country’s largest banks that have recently reported heftier growth on year-on-year net profit in the first three months of the year. AUB’s net income rose 126 percent to Php383 million during the period from Php170 million a year ago.
Similar to most banks, higher gains from securities trading was also the main profitability driver for AUB. While many consider trading income as “one-off” gains that could not be sustainable in the long haul due to the unpredictability of the financial markets, AUB said diversifying its treasury portfolio is part of a holistic and long-term strategy to aggressively build up its financial muscle, in addition to strengthening its core businesses and expanding its nationwide presence.
“While we pretty much have the same story as most banks when it comes to their robust first-quarter results, what made ours different is that we have managed to sustain these trading gains since we started diversifying into emerging markets in 2003,” said Antonio Agcaoili, AUB executive vice president and head of treasury.
For the first quarter, AUB booked trading gains of Php444 million, which was more than 17 times the previous year’s level. It took the opportunity to set aside an additional Php86 million in loan loss provisions to further strengthen its financial position.
The medium-sized bank started to look offshore for trading opportunities back when the so-called BRICS (leading emerging economies, namely Brazil, Russia, India and China) was yet to be coined as an acronym and the likes of Argentina was still regarded as a highly indebted country.
“We entered Brazil when the popular Luis Inacio Lula de Silva, considered the most effective and successful leader in their history, was newly elected. The rest was history. Brazil became a net creditor in the external markets and became investment grade shortly thereafter,” said Mr. Agcaoili. “We follow the same investment strategy and discipline in countries like Russia, Indonesia and Qatar – all excellent credits in the emerging market universe.”
Mr. Agcaoili said Philippine banks must still rely on organic growth – shoring up low-cost deposits and lending to individuals and businesses – but they should also not discount the opportunities in other markets aside from the Philippines.
“There are a lot of economic benefits in trading in emerging markets, such as risk-weighted return on capital. For a bank like AUB, this is one way we can level up and compete, particularly if interest rates continue to fall and demand for fresh loans is weak,” he explained.
Trading incomes also come in handy for a bank that continues to be on an acquisition mode. In just a span of three years, AUB bought Rural Bank of Angeles, boosting its presence outside Metro Manila; the Cooperative Bank of Cavite, which is awaiting approval from the Bangko Sentral ng Pilipinas; and Asiatrust Development Bank, which will expand AUB’s nationwide presence to 102 branches to serve more customers.
As of end-March, AUB has total assets of Php50 billion and capitalization of Php10 billion. Its return-on-equity ratio rose to 15.5 percent from 12 percent in end-2011, ranking it among the most profitable commercial banks in the country.
Asia United Bank (AUB) is among the very few Philippine commercial banks granted a full-branch license in 1997 and operating until this day. In just a span of 15 years, AUB has become one of the fastest-growing commercial banks in the country. It is set to expand its nationwide network presence to 102 branches after its acquisition of Asiatrust Development Bank – its third acquisition in a span of three years. In 2009, AUB took over Rural Bank of Angeles, which has four branches and two satellite offices in Pampanga, boosting its presence outside Metro Manila. Its acquisition of the Cooperative Bank of Cavite is awaiting approval from bank regulators. AUB is owned by a group of Filipino, Taiwanese and Singaporean investors engaged in property development, manufacturing, and other equity ventures. Republic Biscuit Corporation (Rebisco), the Philippines’ leading manufacturer, distributor, and exporter of snack food products for the past 49 years, is the biggest shareholder of the bank.