One Network Bank (ONB) ended last year 2010 with P278 million net income for a big 19% increase over previous year’s performance. This net income level represents a 28% return on private equity and 3% return on assets. Based on these income ratios, ONB is one of the most profitable banks in the country today.
The principal contributors to the 19% increase in net income are:
(1) A whopping 37% or P 2.54 billion increase in deposit liabilities which generated additional Treasury Income arising from interest income on a much bigger volume of time deposit placements with depository banks (Due from Banks) and investments in long-term, higher-yield government securities with back-to-back credit line.
(2) Low cost CASA deposits: Around 2/3 of total deposit liabilities is low-cost CASA.
(3) Loans to deposits ratio (intermediation ratio) of only 64 % raised the level of excess
liquidity which allowed the pay off of 100 % of bills payables amounting to P800 million, thereby reducing to zero the bank’s cost on borrowings starting on the third quarter of last year.
(4) The wider branch network of 80 branches helped in the generation of the above37% increase in deposit liabilities, especially in countryside branches.
Negative factors that limited net income growth to only 19% are:
(1) Lower net interest margin on DepEd-APDS Loans to Teachers
(2) Lower interest rate ceiling of 12 % add-on rate as imposed by the new MOA with DepEd on APDS (Automatic Payroll Deduction System) Salary Loans to Teachers. Note that this lower yield impacted on a big DepEd-APDS portfolio of around P 3.5 billion.
(3) Loan Portfolio Volume Marginally Increased by 3% only
(4)This is mainly due to DepEd-APDS salary loans taken out by competing banks specially in the Davao Region X1 areas who attracted teachers with a bigger loan amount of P 250,000 as against ONB’s maximum loan amount of only P 150,000. This competitive disadvantage was however neutralized starting in October last year with ONB matching competitors’ higher loan amount ceiling of P 250,000.
