Chapter 4 - Financial Projections

Postal Bank will become a major player in the country’s development efforts and emerge as the authentic government bank for countryside development by using the PPC network of 1900 postal offices nationwide. This will ensure Postal Bank’s presence in practically all corners of the Philippines.

Apart from its traditional banking products and services, the Bank shall work with LGUs, NGOs and community organizations, to finance community development projects as well as develop programs which address the needs of cultural minorities and people empowerment.

A major objective of the bank is to become financially strong to eventually become one of the top 10 thrift banks, or even a commercial bank, in the future.

The Bank will achieve all the above thru the following financial action plans:

  • Set-up additional branches and create synergy with PPC through the use of the 1,900 postal offices nationwide
  • Turn around 2011 operations from a loss of P6.4 million as of October 2011 to an income of approximately P4.56 million by end of 2011
  • Sustain profitable operations, through new products and financial services
  • Establish a strong financial condition
  • Pursue capital restoration and build-up
  • Increased Network and Customer-Reach

The Bank plans to put up 25 more branches to widen its operations to serve the cash and banking requirements of government, corporate and individual clients.

The opening of 10 new branches is envisioned in 2014, to be followed by 8 branches in 2015 and 7 branches in 2016.

The Bank branch network will therefore be as follows:

Table 9. Branch Network, 2012-2016

Existing Branches2525253543
New Branches  1087
TOTAL  354350

In addition to the opening of new branches, PostalBank will start implementing early 2012 in its synergy of operations with the Philippine Postal Corporation (PPC) in order to expand the reach of the Bank’s operations. PostalBank and PPC will identify the initial list of Postal Offices that can be tapped for this program.

    1. Initially, the identified Postal Offices, will take on the following roles:
      • Perform marketing activities to “sell” PostalBank Products and services (Deposits & Loans) to LGUs and other agencies;
      • Serve as the conduit between PostalBank and Clients;
      • Use the Postal Offices as Sales Outlets for the Bank’s Cash Cards; and
      • Use the Postal Offices’ facilities for the Bank’s remittance operations
  • Turn-around of 2011 Operations and Sustained Profitable Performance
      1. Turn-around of 2011 Operations

        The Bank registered losses of P12.21 million for the period January – July 2011 and this was expected to balloon to more than P20 million by end of 2011. The new Bank management has instituted measures to reverse the situation and achieve a positive income position by year-end 2011. The following measures were implemented:

        • Cost reduction in various areas of operations
        • Clean-up and prompt disposition on pending loan applications
        • Generation of more loans
        • Acquisition of more deposits
        • Intensive collections

        As of October 31, 2011, the Bank has been able to reduce losses to PhP6.47 million and expects to end the year with a net profit of approximately P4.5 million.

        Efforts have been made to maximize the Bank’s profits from lending operations by imposing the appropriate fees for loan transactions, encouraging clients to use the unavailed portion of their credit lines, and enhancing the collective efforts of the legal and lending groups to update the payment of past due accounts for both regular and consumption loans.

        Simultaneous with the profit generation activities, management also implemented cost-cutting measures which seek to reduce the Bank’s expenses particularly on compensation and fringe benefits, rent, utilities, litigation and security.

      2. Sustained Profitable Performance

        From the Projected Profit and Loss Statement, the Bank should be able to sustain its profitability with the implementation of its plans and programs.

        With the aggressive generation of deposits, effective channeling of funds through lending and investment activities, and proper management of accounts to reduce instances of past due, the Bank can expect a modest P26.34 million profit in 2012 increasing to P317 million by year 2016.

        The projections only showed a modest profit of P26 million in 2012 because of the loan loss provisioning pinpointed by BSP which has been provided for in the amount of P60 million. If loan loss provisions have not been reflected, a higher net income will be attained.

        Table 10. Projected Income Statement 2012-2016

          Income from Loans505.55608.77808.731,057.381,357.57
          Income from Treasury76.5394.69111.01143.06174.45
          Fees and Commissions Income96.31101.94135.47175.98226.16
          Income from Others24.1026.8531.3336.2642.49
        TOTAL REVENUES702.49832.241,086.541,412.691,800.68
          Interest Expense on Deposits153.99184.79243.00314.35402.94
          Non-Interest Expenses (Admin)431.59457.18571.57676.41780.03
        TOTAL EXPENSES585.58641.97814.57990.761,182.98
        NET OPERATING INCOME116.90190.27271.98421.93617.70
          Income Tax Expense8.7820.6552.0096.08149.16
        TOTAL PROVISIONS AND TAXES90.57128.32150.65217.77300.73
        NET PROFIT OR LOSS26.3461.96121.33204.16316.97

        Figure 14. Projected Net Income, 2012-2016 

      3. Profit and Loss Statement Ratios Table 11. Profitability Ratios, 2012-2016

         Industry Ave.20122013201420152016
        Return on Assets (ROA)1.00%0.43%0.77%1.20%1.55%1.89%
        Return on Equity (ROE)8.50%5.25%6.92%9.90%12.46%15.66%
        Cost to Income Ratio71.55%63.59%56.73%54.14%49.12%44.35%
        Gross Profit Margin 158.54%155.29%155.93%155.34%155.72%
        Operating Profit Margin 27.32%36.72%40.22%47.64%54.73%
        Net Profit / Total Revenue 3.75%7.44%11.17%14.45%17.60%
        Net Interest Margin 9.01%8.93%9.26%9.35%9.48%
        Net Profit Margin 6.15%11.99%17.97%23.07%28.10%

        The projection shows that in terms of profitability, PPSB’s is set to achieve ratios within the industry standards in 2012 and will continue to improve until 2016.

  • Increased Total Resources
      1. Increased Deposits

        PPSB will be more aggressive in deposit generation from LGUs, government institutions, private companies and individuals. To expand its reach and widen its area of coverage, PPSB will use the facilities of Postal Offices nationwide as mentioned earlier.

        The Bank shall intensify its marketing efforts to generate P6.16 billion in deposits in 2012 and to reach P16.12 billion by 2016 by offering its deposit products such as regular savings accounts, checking account, time deposit accounts, and foreign currency deposit, among others, to private and government clients, thru customary and innovative means using print media and the internet.

        Aside from the regular deposit products, PPSB shall diversify its product line by introducing to clients the Prime CTD One (Time Deposit), Premium Earner Account (Long-term Time Deposit), PostalCash Premium (NOW Account), and PostalBank Quick Cheque (Personal Checking Account).

        The Bank intends to have in 2012 an average of 62% of its deposit from the government sector and 38% from private sources. From 2014 to 2016 it is targeted that the deposit mix will be 60% government and 40% private sector.

        Deposit levels are projected to be as follows:
        Amount in million PhP20122013201420152016

        Table 12. Projected Deposit (Private and Government), 2012-2016

        Figure 15. Projected Deposits, 2012-2016      

        Average cost of funds is 2.5% with resulting interest expenses for deposits as follows:

        Table 13. Interest Expense Schedule, 2012-2016
        Amount in million PhP20122013201420152016
        Interest Expense153.99184.79243.00314.35402.94
      2. Lending Operations

        PPSB will increase utilization of loanable funds from a low of 83% at present (October 2011) to 90% in 2012 to 2016. Focus will be on salary and consumer loans to government and private sectors, developmental loans to LGUs and loans to small and medium enterprises.

        The Bank shall strive to lend at least P3.66 billion or 90% of its loanable funds to finance qualified government and private projects as well as service the financial needs of retail consumers in 2012. This is projected to increase to P9.7 billion in 2016. In like manner, same with the deposit generation activities, the Bank shall enhance its marketing efforts to secure quality loans that will make for a continuous flow of income for the Bank.

        Despite the projected increase in loans, PPSB shall ensure that past due loans shall be within manageable levels. From a high of 12.98% in October 2011, the Bank aims to attain an NPL (Non-Performing Loan) ratio of around 8% by end of 2012 and 6.7% in year 2016.

        Figure 16. Projected Loan Level, 2012-2016 Figure 16. Projected Loan Level, 2012-2016

      3. Income from Treasury Operations

        Projected treasury income/ revenues are as follows:

        Table 14. Projected Treasury Income, 2012-2016

        TOTAL INTEREST INCOME-DUE FROM BANKS6.998.3310.8914.0818.05
        TOTAL INTEREST INCOME-FINANCIAL ASSETS43.1851.0466.1085.50109.60
      4. Remittance and Fees/Commissions Income

        Besides the traditional banking products, PPSB shall provide Remittance Services – (international and domestic), Bills Payment Services and Cash Cards, capitalizing on the synergy of operations between PPSB and PPC whose strong presence nationwide will give both institutions a competitive advantage.

        Table 15. Fees and Commission Income Schedule, 2012-2016
        Amount in million PHP20122013201420152016
        Remittance Income4.449.5622.2333.6159.25
        Other Fees and Commission Income (Loan Charges, etc.)91.8792.37113.24142.38166.92
        Total Fees and Commission Income96.31101.94135.47175.98226.16
  • Financial Condition
      1. Balance Sheet Balance Sheet Accounts is projected as follows:

        Table 16. Major Balance Sheet Accounts Schedule, 2012-2016

        Amount in million PHP20122013201420152016
        Cash and Due from Other Banks284.76365.95541.47748.651,002.12
        Other Assets696.72779.601,333.651,645.292,065.75
        TOTAL ASSETS7,245.598,782.1911,499.3814,825.9518,706.04
        Deposit Liabilities6,159.697,391.639,719.9512,573.9416,117.73
        Other Liabilities334.06350.77368.31386.72406.06
        Undivided Profits and Capital Stock277.84813.791,161.121,615.282,182.25
        Capital Infusion474.00226.00250.00250.00
        TOTAL LIABILITIES AND EQUITY7,245.598,782.1911,499.3814,825.9518,706.04
      2. Financial Ratios

        The Plans and Programs of PPSB are expected to result in a financially healthier Bank as shown below:

        Table 17. Major Balance Sheet Financial Ratios, 2012-2016
         Industry (as of Mar 2011)20122013201420152016
        Capital Adequacy      
        Capital Adequacy Ratio (CAR) – consolidated basis16.11%*
        Total Capital Accounts to Total Assets11.69%10.38%11.84%12.27%12.58%11.67%
        Asset Quality      
        Non-performing Loans (NPL) Ratio (inclusive of IBL)7.31%6.75%6.35%6.58%6.23%6.01%
        Non-performing Loans (NPL) Ratio (exclusive of IBL)7.43%7.96%7.71%7.31%6.92%6.68%
        NPL Coverage Ratio 2/64.24%27.68%31.26%22.78%22.99%23.18%
        Non-performing Assets(NPA) to Gross Assets7.85%6.48%5.90%5.76%5.71%5.97%
        NPA Coverage Ratio 3/41.83%17.19%20.48%14.74%14.24%13.45%
        Distressed Assets Ratio 4/12.57%8.54%7.64%7.59%6.92%6.48%
        Cash and Due from Banks to Deposits12.95%4.62%4.96%5.59%5.98%6.24%
        Liquid Assets to Deposits36.51%43.28%45.30%39.45%39.83%40.10% 
        Loans, gross to Deposits76.19%59.39%59.77%60.15%60.15%60.15% 
        Note: *industry
        **BSP threshold

        From the above, it can be seen that the planned operations of PPSB will result in a favorable asset quality, liquidity and capital adequacy ratios. Based on the balance sheet ratios arrive at, using the financial projections, the Bank is set to achieve ratios within the industry standards.

        In terms of Capital Adequacy, the Bank arrived at a ratio which is above the BSP threshold of 10% and will be sustained until 2016.

        In terms of Asset Quality, the Bank’s NPL ratio is within the industry standard. The Bank will be continuing to improve its NPL ratio by providing quality loans and aggressively collecting past due accounts as well booking of loan loss provisions to cover losses on past due.

        In terms of liquidity, the Bank is set to maintain its liquid assets within the industry level.

Figure 17. Capital Adequacy Ratio (CAR), May 2011 – Year 2016 

Figure 18. NPL Ratio, July 2011 – Year 2016 

Figure 19. Return on Equity (ROE), June 2011- Year 2016 

  • Capital Restoration and Build-Up

As of December 31, 2010, the Bank had a Capital Account of PhP 444.61 million. However, by the mid-2011, the Bangko Sentral ng Pilipinas (BSP) informed the Bank that the combined results of their annual examination will show the impairment of its Capital to only PhP132.79 million, reflecting a CAR of only 7.5%.

The new leadership of the Bank immediately instituted corrective measures to address some of the major concerns of the BSP. As of September 2011, the unimpaired Capital Account of the Bank is P247 million that will give a CAR of 11.77% which is over the threshold of 10%.

Within the next few months, the Bank expects fresh capital infusion from national government in the amount of PhP249 million. An additional PhP225 million capital infusion will be made in 2012. In addition to the expected net profit in 2012, this will result in a capitalization of PhP 751 million by the end of 2012, surpassing the P325 million requirement for banks operating in Metro Manila.

The complete capital build-up plan of PPSB will result to a P2 billion capital by 2016.