Metropolitan Bank and Trust Company

August 11, 1998 PSE CIRCULAR FOR BROKERS NO. 1868-98 SUBJECT : Metropolitan Bank and Trust Company With reference to the news article captioned "Metrobank sees increase in bad loans to 7%", published in the July 23, 1998 issue of the Business World, attached is Metropolitan Bank and Trust Company's ("MBT") reply to the Exchange's request for a written confirmation/clarification of the said article. For your information. (SGD.) REYNOLD P. ONG Vice-President, Listings and Disclosure Group July 28, 1998 PHILIPPINE STOCK EXCHANGE, INC . Disclosure Department Philippine Stock Exchange Center Exchange Road, Ortigas Center Pasig City Gentlemen : This refers to your fax message of July 23, 1998 on the news article METROBANK SEES INCREASE IN BAD LOANS TO 7% that was published in the July 23, 1998 issue of the Business World (BW). aisadc Following are our replies to the items on which you requested our written confirmation/clarification: 1. On the increase in the level of non-performing loans (NPLs) from 4.2% to 5.8% for the first half of 1998: Our verification of the percentages of NPLs to gross loans as published in the July 23, 1998 issue of the BW disclosed the following: 4.2% represents the percentage of NPLs to gross loans of the Bank and its subsidiaries based on the consolidated audited financial statements of the Bank and its subsidiaries for the year ended December 31, 1997; and 5.8% represents the percentage of NPLs to gross loans based on the unaudited financial statements of the parent company (Bank only) as of June 30, 1998. For comparability, the percentage of NPLs to gross loans of the parent company (Bank only) are as follows: As of June 30, 1998 5.75% (Based on unaudited figures) As of December 31, 1997 3.71% (Based on audited figures) These ratios were computed as follows: Parent Company June 30, 1998 December 31, 1997 (Unaudited) (Audited) Total NPLs P 8,343 million P 5,447 million Total loan portfolio 145,094 million 146,772 million Percentage of NPLs to Total Loans 5.75% 3.71% 2. On the issuance of additional debt instruments in the capital market: While the Bank is open to the possibility of issuing additional debt instruments in the capital market when opportunities arise, we do not have any definite plans at the moment. 3. On the possible effects of the NPLs to Metrobank's operations and financial activities: NPLs tend to drag the Bank's resources and net income, as valuation reserves have to be set up in compliance with the provisioning requirements of the Bangko Sentral ng Pilipinas (BSP), not to mention the non-performing status of these assets. At this point in time, however, there is no real cause of concern for Metrobank as its NPLs are still way below industry's average (7.58% as of the first quarter of 1998). Furthermore, the Bank has a healthy capital to risk assets ratio of 17.82% as of June 30, 1999. 4. On Metrobank's plans to redress increasing NPLs: a. The Bank's credit policies have been continuously reviewed and strengthened. Also, Metrobank's credit function is centrally administered and controlled, with policy compliance monitored by a specifically established senior credit review group the Non-Performing Assets Committee (NPAC). NPAC has scheduled more frequent meetings over the past year to review and monitor the Bank's outstanding and problem loans. This translated into more careful monitoring of accounts as well as an increased share of secured loans in our portfolio. b. The Bank has exercised a more cautious approach to lending and more conservative asset collateral valuation (maximum of 60% of appraised value in accordance with the BSP guidelines). c. The Bank has also exerted efforts to aid clients with strong viability and potentials in restructuring their loan accounts, considering that NPLs are due mostly to clients' liquidity problems resulting from the ongoing financial crisis. Account managers have been instructed to conduct more frequent calls and dialogues with these accounts to properly appraise the extent of their difficulties. For others, we have either increased collection efforts or sped up the foreclosure of collaterals to secure the Bank's position. We trust that these meet your requirements. Very truly yours, (SGD.) ANTONIO V. VIRAY First Vice President Metrobank sees increase in bad loans level to 7% By ELISHA R. GARCIA Reporter Metropolitan Bank and Trust Company (Metrobank) projects an increase in its level of non-performing loans (NPL) to between 6% and 7% of its total loan portfolio this year with the continuing difficulty of companies, particularly those in the manufacturing sector, to meet their loan obligations. Metrobank senior vice-president and comptroller Alfredo Javellana yesterday said the bank's NPL level for the first half was placed at 5.8%, a slight increase from 4.2% last year. Metrobank president Antonio Abacan earlier said the bank sees a "worse-case" NPL scenario of 5. 5% to 6% for the year. NPLs are loans whose interest and principal have not been paid for three consecutive months. The country's largest bank also sees a contraction in its net income for the year from the P5.25 billion it posted in 1997. During the first half, the bank made P2.844 billion in net profit, P145 million more than it made during the first semester of 1997. Mr. Javellana attributed the increase to lower interest rates during the first half which resulted in lower net interest margins for the bank during the period. He also said the increase in the bank's level of NPLs also placed a drag on its bottom line during the first half. To cover its increasing level of bad debts, Metrobank has set aside P335 million in loan loss provisions during the period, he said. The bank intends to raise provisioning level to P1 billion to P1.6 billion towards the end of the year. Mr. Javellana said the bank has been experiencing somewhere between flat growth to a slight contraction in the amount of loans it has extended during the first semester as the peso volatility continues to exert pressures on bank lending activity. Despite this, he said the bank sees a loan growth of 5% to 10% this year because of the decline in interest rates. "We hope to have low interest rates towards the end of the year especially if Japan will be able to help stop the depreciation of the yen. We are beginning to see people replenishing their inventories, resuming activities they put off earlier," Mr. Javellana said. The bank has so far restructured 1% of its total loans placed at P150 billion as of the end of 1997. Mr. Javellana also said a decline in bank spreads is also expected to result in a "stabilization of sorts" towards the end of the year. "Interest rates have become a function of liquidity. Lending standards have declined a bit although the bank has not stopped lending," Mr. Javellana explained. At its special stockholders meeting yesterday, Metrobank approved a 20% stock dividend and an amendment to its articles of incorporation which will prevent the extension of preemptive rights to the issuance of shares relating to equity-linked debt securities offered and sold in the international capital market. Mr. Abacan explained the waiver on the preemptive rights will essentially allow the bank to avoid the process of contacting its shareholders every time new common shares of the bank are issued. At the same time, the waiver will also allow participants in the international capital markets to gain instant access to the bank's common shares when they convert or exchange their bonds. In 1995 and 1996, Metrobank undertook a $100-million convertible bond issue and a $219-million exchangeable notes issue abroad. Although the move was seen to hasten the conversion or the exchange of the bank's debt instruments, its existing shareholders are facing the prospect of a dilution of their shareholdings, depending on the amount of bonds that are transformed into equity. Mr. Abacan said the bank is open to the possibility of issuing additional debt instruments in the capital market when the opportunity arises later on this year or next year. Out of the bank's convertible note, an estimated 70% has already been converted into shares of stock in the bank by international investors. cdlex