By MAX ESTAYO

Bank of the Philippine Islands, the country’s third-largest lender by assets, said yesterday revenues this year would be hit by financial market turmoil and more difficult local market conditions.

"The first quarter has been one of the most turbulent quarters both from an economic point of view and investments point of view," said bank president Aurelio Montinola.

"Business volumes are good; loans are up 12-13 percent, but revenues are challenged, so that’s why we have to keep our operating expenses flat," he said.

BPI, owned by the Ayala Group and Singapore’s DBS Group, posted a P10-billion net income last year on the back of a 13-percent expansion in loans.

Loans in the first quarter rose by also 13 percent, much of which went to consumers-auto and credit card financing and small and medium enterprises.

There has been much "turbulence" in the first quarter, he said, and that may stay for most of the year.

"There will be pressure on margins and so we’ll have pressure on net interest and on non-interest margins," he said.

There’s a big difference between this year and 2007, he said, with "inflation coming back and interest rates rising."

The growing "nervousness in the global markets" is also adding to the difficult environment, he said.

Nonetheless, strong fundamentals will enable the domestic economy weather the changes, he said, while reforms in the system will help banks cope with the turbulence.

"There are challenges globally. These will impact on the Philippines. But although economic prospects in the world and in the country are less rosy, there are fundamentals that should result in positive economic growth," Montinola said.

"The banking industry is also healthy as it has been in the past five years. That will help us from any economic slowdown," he added.

Montinola said BPI has outpaced the industry loan growth of five percent in the first quarter and he sees the expansion persisting for the rest of the year.

"We expect to perform ahead of the industry. We’ll concentrate on consumer and SME lending, as well as card lending," he said.

Montinola said the bank will also focus on asset management and overseas banking or remittances, which grew by 17 and 30 percent in the first three months.

Montinola said the lender will improve its assets quality this year to further free up capital for lending.

The bank will sell P3 billion of foreclosed assets this year, he said, to bring down real and other properties acquired (Ropa) from its current level of P20 billion.

The bank has a total non-performing assets of P31 billion including non-performing loans of P11 billion.

Montinola said the lender is in discussion with the foreign bank for the wholesale disposal of a "small portion" of the bad assets.

"We generally want to do retail because prices are better from the retail point of view. But wholesale solutions in the past have been useful and that’s something we’ll attempt to do," he said.

Montinola said BPI, was also ready for another acquisition after it raised its authorised capital by 69 percent to 49 billion pesos ($1.2 billion).

"BPI is known for acquiring and our last acquisition was in 2005," Montinola told reporters. "Let’s just say, given the health of BPI today, we are ready when an opportunity arises," he said, when asked about possible acquisitions.

The bank, the Philippines’ most valuable lender with a market value of $3.6 billion, bought medium-sized Prudential Bank in 2005, five years after it bought rival Far East Bank & Trust Co.

BPI said the hike in its authorised capital was partly due to its declaration of a 20 percent stock dividend, its first in three years.

"The increase in authorised capital stock is the first we’ve done within the last 7 years," Montinola said. "Every now and then we increase our authorised capital stock significantly so we will be ready for the next 4 or 5 years."

BPI is expected to post net income of 11.75 billion pesos this year, up 17.5 percent from 2007.