CITY SAVINGS BANK, Inc. (CitySavings), the thrift banking subsidiary of listed Union Bank of the Philippines, Inc. (UnionBank), expects its margins to improve this year as borrowing costs are expected to come down.

“What we’re also looking forward to is the gradual reduction in interest rates and cost of funds, because that will allow us to also improve our margins,” CitySavings Chief Executive Officer Lorenzo T. Ocampo told BusinessWorld earlier this month.

“As a bank, we also rely on borrowings to fund our loan growth. So, as interest rates come down, we expect that the borrowing rates will also come down,” he added.

The lender also targets steady loan growth for the rest of the year, the official said.

Mr. Ocampo said the bank’s core lending business of salary loans for teachers posted about 5% growth as of July, while its other businesses expanded by around 20% to 30%.

“I think that’s sustainable for the balance of the year. If you look at our growth rates year to date, that should be sustainable until the end of year,” he said.

Meanwhile, CitySavings could issue a second social bond early next year, Mr. Ocampo said.

This, after it issued its first social bond in June, with the International Finance Corp. (IFC) investing $100 million. The issuance made CitySavings the first thrift bank in the Philippines to issue a social bond.

Proceeds from the social bond will be used for loans to women in low and lower middle-income groups, the IFC earlier said. The social bond follows The International Capital Market Association’s Social Bond Principles and the ASEAN Social Bond Standard.

“The need for it is something that we can use right away. But what we’ve noticed is that the IFCs of this world and the other international institutions that want to do the bond with us have a longer due diligence. But I think, maybe because we’ve gone through the process already, it should go faster. So, early next year at the latest,” Mr. Ocampo said.

CitySavings could also raise a higher amount from its second social bond issue, depending on market conditions, he added.

“$100 million is not a big number in terms of our loan growth so certainly, we’re open to doing this again,” Mr. Ocampo said. “The other thing is we want it to be variable because as you see, the next three to four years, the rates will continue to come down.”

He added that other institutions have expressed interest in investing in their planned social bond issue.

The Bangko Sentral ng Pilipinas (BSP) this month cut benchmark interest rates for the first time in almost four years amid an improving inflation and economic outlook, with its governor signaling at least one more reduction before the end of the year.

The Monetary Board reduced its target reverse repurchase rate by 25 basis points (bps) to 6.25%, as expected by nine out of 16 analysts in a BusinessWorld poll. Prior to the cut, the BSP kept its policy rate at an over 17-year high of 6.5% for six straight meetings following cumulative hikes worth 450 bps between May 2022 and October 2023 to rein in elevated inflation.

BSP Governor Eli M. Remolona, Jr. said they could cut rates by another 25 bps within the year. The Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19.

Meanwhile, the US Federal Reserve is widely expected to begin its own easing cycle by next month. It has kept the fed fund rates steady at the 5.25%-5.5% range since July 2023.

CitySavings, which provides salary loans to public school teachers, government workers, and pensioners, was the third biggest thrift bank in the country in asset terms as of end-March with P160.79 billion, latest Bangko Sentral ng Pilipinas data showed.

Meanwhile, its listed parent UnionBank’s attributable net income went up to P3.02 billion in the second quarter from P2.52 billion a year ago. — Aaron Michael C. Sy