Bank of the Philippine Islands

Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the third quarter and nine months of 2025. I'm Haj Narvaez, your moderator for this session. We are conducting this briefing in a hybrid manner with our BPI speakers and panelists here in our headquarters at Tower 2 of Ayala Triangle Gardens, Makati City. We also have the rest of our participants dialing in remotely. I am pleased to introduce you to our speakers and panelists this afternoon. First, T.J. Lemkauko, President and CEO. Eric Lochanco, CFO and CSO. They will be joined in the panel for the Q&A by Tere Marshal, head of BPI Wealth. Jindy Goh, head of Consumer Banking. Louis Cruz, head of Institutional Banking. Jenny Lacerna, head of Mass Retail Products. Dino Gassman, treasurer and head of Global Markets, is unable to join us today, but representing him and the group will be Jethro Sora. We are also joined by the rest of the BPI leadership team in this call. So moving on, this afternoon's agenda will begin with opening remarks from our President and CEO, T.G. Limcauco, followed by our CFO and CSO, Eric Luchanko, who will walk you through the third quarter and nine months performance highlights, as well as the digitalization updates. The floor will then be open to questions from the audience. Please note that this call is being recorded and legal disclaimers apply. Now let me turn you over to T.G. for his opening remarks.

Thank you very much, Hodge, and a nice afternoon to all of you, and thank you for joining us this afternoon. As we reported last October 16, our financial results remain robust. demonstrating that our strategy of broadening our client base growing the share of our non-institutional loans in our loan book investing in our distribution channels and technology that of our physic our physical branches our digital platforms and our unique agency partners now with close to 7 000 stores which all allow us to serve more customers more efficiently and delivering service that is truly customer obsessed. All these are delivering results as we expected. Nine-month net income of 50.5 billion pesos, that's up 5.2% versus last year, which delivered an ROE of 15% and a return on assets of 2%. Our net income was driven by strong revenue growth of 13.2%, and managed operating expenses, which grew 10.3%. Our net interest income, which comprises about 77% of total revenues, grew 16.2% as a result of loan growth that was over 13% and NIM expansion of around 30 basis points. All these numbers, our CFO, Eric Luchanko, will restate with more detail, along with details on our balance sheet growth. The analyst community has expressed some concern on NPL and provisions, not only at BPI, but for the industry as a whole. Eric and the team will walk through some of the numbers that should evidence that our strategy of expanding our consumer book, which is the reason for the slightly higher NPL numbers, is truly paying off. The team present today would be more than happy to give more details on these, as well as our policy on provisioning, which follows the output of our expected credit losses, of our expected credit loss models, which we believe are forward-looking and are independently vetted and verified by third parties. We would also be more than happy, of course, to provide you with our outlook on these markets going forward. Finally, Eric will provide what I call snippet updates on our digital initiatives, including that of the use of AI in our first project, the breadth of our agency banking rollout, and our expansion of our wealth business. Again, thank you for joining this afternoon, and allow me to turn the floor over to our CFO, Eric Luchanko.

Thank you, T.G., and good afternoon to and thank you to everybody joining us today on our third quarter earnings call. As usual, I'll start off with an update on our financial performance to be followed by some updates on key initiatives of the bank and then move on to taking some questions as part of a panel. This quarter's results extended the pattern of growth from previous periods highlighted by the following. For the first nine months, For the first nine months, the bank generated record income of $50.5 billion, up 5.2% from the prior year, driven by revenue growth. The bank also generated a record quarter income of $17.5 billion, up 7.4% quarter-on-quarter, largely driven by loan expansion in the non-institutional segment. Indicative return on equity stood at 15%, and return on assets at 2%. The balance sheet continued to expand, with loans up 13.3% year-on-year and 1.8% quarter-on-quarter, while deposits were up 7.7% year-on-year and 2.5% quarter-on-quarter. Liquidity ratios remained robust, while the capital position further strengthened from strong income generation, with the CET1 ratio at 14.9% and CAR at 15.8%. With the NPL ratio at 2.3% and NPL cover at 96.5%, credit quality remains under control and favorable versus industry averages. We delivered earnings per share of 9.55 pesos per share for the first nine months, and we are on track to pay improved dividends for the second half. Net income reached 50.5 billion for the first nine months, up 5.2% year-on-year, driven by strong revenue growth that offset higher operating expenses and provisions. Net interest income rose 16.2% year-on-year to 109.1 billion. driven by a 13.3% loan growth and a 27 basis point increase in NIM. Trading income increased 13.5% to $3.38 billion against a backdrop of declining interest rates. Fee income was up 6.5% to $28.1 billion, reflecting transaction activity growth. Total revenues reached $142.3 billion, up 13.2%. year on year, sustaining the positive job versus the 10.3% rise in OPEX to 65.5 billion. Provisions were up 145% from last year, reaching 11.75 billion, tempering net income growth to 5.2% at 50.5 billion. Looking at it on the per quarter basis, net income reached $17.5 billion, up 7.4% quarter on quarter. Total revenue rose to $49.8 billion, up 4% from the previous quarter, driven by net interest income of $37.9 billion, up 3.2% quarter on quarter, despite a slight decline in NIM for the period. This growth underscores the continued momentum in non-institutional loans which offset the flattish performance for institutional loan volume for the quarter. Fee income of $9.55 billion, up 2.8% quarter-and-quarter, and trading income of $1.8 billion, up 50.5% quarter-and-quarter. Moving on to the next, for the first nine months of the year, We can move on to the next slide. For the first nine months of the year, earnings per share reached 9.55 pesos per share, reflecting a 5.2% year-on-year increase. Profitability remained strong with an annualized return on assets of 2%. Return on equity remained solid at 15%, demonstrating sustained value creation for shareholders. Moving on to the balance sheet, total assets reached 3.5 trillion, reflecting a 9.3% year-on-year increase. Loan portfolio expanded to 2.4 trillion, up 13.3% year-on-year, and 1.8% quarter-and-quarter, driven by sustained credit demand across segments. The deposit base expanded 7.7% year-on-year, primarily fueled by growth in time deposits. Both loan and deposit growth outpaced industry averages, contributing to further gains in market share. The CASA ratio was at 61%, while the loan-to-deposit ratio stood at 90%, reflecting efficient funding utilization. Managed deposit growth combined with a 450 basis point cumulative reduction in the reserve requirement ratio since October of last year supported liquidity and lending capacities. The loan book grew 13.3% to $2.4 trillion, indicating continued positive momentum. Notably, the non-institutional segment now accounts for 30.8% of the total loan book. This puts us about one year ahead of the 2021 plan to hit a 30% ratio by year-end 2026. Net interest margin for the quarter was 4.62%, easing five basis points quarter and quarter, the first quarterly decline since the rate cuts in October last year. During the quarter, asset yield rose by one basis point as the positive impact of higher loan volume and an 11 basis point increase in loan yields was offset by lower yields from investment securities. As shown by the red line on the right-hand chart, loan yield actually continued to increase, reaching 8.16%. Meanwhile, cost of funds rose six basis points, quarter and quarter, driven by an increase in time deposit volume, which outweighed the benefit of lower TD rates and other borrowing rates. Overall, credit demand remained resilient, and VPI's growth continued to outpace industry. Gross loans increased by $283.3 billion, or 13.3% year-on-year. Non-institutional loans accounted for over half of that growth, rising $159.4 billion, or 27.2% year-on-year. The growth in non-institutional loans was led by business bank loans up 72.3%, Personal loans up 31.4%, credit card loans up 30.6%, auto loans up 28.7%, mortgage loans up 19%, and microfinance loans up 16.8%. These reflect robust growth momentum, especially considering the higher base following successive years of strong growth. On funding, we continue to optimize our funding sources by shifting from time deposits to bond issuances, leveraging incentives under BSP circular 1185 for green and sustainable financing. This approach offers a lower effective yield compared to that of top rate time deposits. While deposits remain our primary funding source, we saw a 34% increase in borrowed funds, which now account for 7% of total funding. Funding ratios remain stable with loan-to-deposit ratio at 90.3% and loan-to-total funding at 83.7%. We continue to prioritize strengthening our deposit base with focus on CASA. Our CASA mix remains predominantly retail compared comprising 77% of the total, including contributions from microfinance and SMEs. Growth in CASA is being driven by the core mass market and mid market, reflecting client base expansion and higher average balances. On asset quality, credit quality remains manageable despite expansion into higher yielding segments. NPLs rose 55.01 billion, and the NPL ratio remained broadly stable at 2.29%, as the new rate of NPL formation slowed. Provisions reached 4.5 billion for the quarter, bringing year-to-date credit costs to 68 basis points. NPL coverage remains adequate at 96.5% and further strengthened to 122.3% under BSP circular 941, ensuring a solid buffer against potential credit losses. Across segments, the institutional, business bank, mortgage, microfinance, and auto loan segments posted declines in their respective NPL ratios. Personal loans NPL ratio rose by 123 basis points quarter-on-quarter to 7%, while credit cards increased by 32 basis points to 4.65%. The increase in personal loans NPL is primarily from the universe expansion initiative, which included lowering the income requirement in 2023. To mitigate further delinquencies, we tightened the credit score, cut off starting May 2025, and this adjustment has proved effective as accounts post-tightening show a lower NPL ratio of 5.5% four months after booking. Teachers' loans, which account for 33% of personal loans, also contributed to the delinquencies, even though 28% of the loans classified as NPL are still paying regularly due to a system implementation under DepEd rules. Excluding these technical NPLs, the adjusted NPL for teachers' loans would improve to 6.6%. For personal loans, it would improve to 6.6%. The increase in credit card loans is 55% from depositor programs and 45% from regular programs, covering mostly younger segments, lower income, and new to credit. Similar to PEL, we tightened the credit score requirements starting August and will only be able to measure the impact after six months. Microfinance NPL ratio rose by 250 basis points year-on-year, reaching 13% due to the test program that granted higher loan amounts to existing clients and extending loan tenors. However, recent bookings have shown improved performance following the tightening of credit score requirements. Business banking NPL ratio remains stable quarter-on-quarter, up 180 basis points year-on-year, primarily due to the strong loan growth last year. BB loan balances doubled in 2024, which suppressed the NPL ratio. With the recent tapering in loan growth, the NPL ratio has now adjusted to the 7% to 8% range, which reflect more normalized levels for business banking. In addition to NPL coverage, we report ECL coverage at 102.5%. As shared during our previous earnings call, our provisioning approach is anchored on ECL, which provides a forward-looking estimate of potential losses. The shift from an NPL-based approach is driven by two key considerations. One is provisioning against NPL is reactive, as it occurs after loans have become NPL. And two, under PFRS 9, we're required to maintain reserves that adequately cover the ECL. Additionally, we maintain surplus reserves for performing loans through the GLLP or General Loan Loss provisions. Together, these provisions reflect a prudent and forward-looking credit risk strategy, ensuring our financial statements present a realistic view of expected losses. Moving on to fee income, fee income for the quarter reached $9.55 billion, up 2.8% quarter-and-quarter, and 1.7% from last year, driven by continued growth in core businesses. Card fees surged 17.3% on a 21% increase in billings, 17% increase in transaction count, and 3% increase in average ticket size, supported by a growing card base, which increased 7%. Wealth management fees grew 7.5% with AUM reaching 1.8 trillion. 88% of the increase came from client contributions, reinforcing our market leadership in trust assets and mutual funds where we continue to gain market share. Income from the insurance business rose just 1.5%, primarily due to a decline in equity income of our insurance subsidiaries given challenging market conditions. Excluding this impact, insurance fee income grew 6.8% year-on-year. These gains were partly offset by lower fees on retail loans due to outsized housing loan penalties charged last year. Remittance fees declined due to lower transaction count amid increasing competition. Bank service charges dropped as clients continued to shift from branch transactions to online channels. Digital channel fees also declined despite the 10% increase in API partner volumes, mainly due to the termination of e-wallet loading services to GCash and Maya. Operating expenses rose by 1.7% quarter-and-quarter and 7.9% year-on-year, primarily driven by manpower, premises, and other expenses. which includes marketing, rewards, business volume-related expenses, and third-party fees. These investments have strengthened the bank's position. We added nearly 2 million new customers since the start of the year, bringing our total customer count to 17.8 million. We achieved strong volume growth across the bank and gained market share in key areas, including loans, deposits, and wealth management. We achieved operational efficiencies with a cost-income ratio continuing its steady decline. Although we expect expenses to show the usual spike in the fourth quarter, our cost-income ratio is currently trending close to a percentage point lower than last year. Moving on to capital, our CET1 capital reached $402 billion, driven by strong income accretion despite the June dividend payment. The capital position remains robust with indicative CET1 at 14.9% and CAR at 15.7%, both well above regulatory and internal thresholds, providing ample capacity to support continued loan growth and strategic expansion. Loan growth at 13.3% year-on-year versus RWA growth of only 7% was due to the application of fill ratings for some eligible issuers and corporates, lowering their risk weights from 100% to between 20% to 50%. The CET1 ratio is estimated to close the year at 14.7%. This table shows the revenues associated with loans covering the first nine months of 2025 and the first nine months of 2023 and the respective net NPL formation for each loan bulk for the two periods. From 2023 to 2025, revenues across the loan books increased by $30.9 billion, which is nearly four times higher than the $7.75 billion increase in net NPL formation. The non-institutional segment contributed $25.1 billion in revenues, surpassing the $13 billion increase in net NPL formation, a pattern observed consistently across all loan segments. The total revenue uplift is driven by the sharp growth in non-institutional volume, which in turn drove the shift in loan mix toward higher yielding segments and the increase in fee income associated with higher loan volume. Revenues have outpaced the cost. Despite the rise in provisions, the pivot toward non-institutional loans has delivered value and validates the bank's direction to grow the share of non-institutional portfolio in the loan mix. While institutional loans are and will remain a core part of our portfolio, non-institutional loans have proven to be a segment with greater growth opportunity, consistently delivering loan yields above 12%, twice that of institutional loans. Even after factoring in credit cost or net NPL formation, which are both around 3%, non-institutional loans continue to show greater risk-adjusted returns. non-institutional loan growth has outpaced institutional loan growth contributing to the uplift in overall profitability as there is greater availability of untapped opportunity in that market. Within the unsecured space of our non-institutional loans, a substantial share of our loan releases has been directed toward existing clients, leveraging insights drawn from their customer profiles, transaction history, and cash flow patterns. In credit cards, 81% of new clients onboarded in the first seven months of the year were already BPI clients. For microfinance and personal loans, year-to-date loan releases also show strong bias toward existing clients with 69% for microfinance loans and 74% for personal loans. This data-driven strategy prioritizes existing clients with stronger financial behavior, thereby enhancing credit quality while supporting loan expansion. The bank achieved strong loan expansion through lending programs, programs with clearly defined parameters to test the viability of new credit models, borrower segments or loan products prior to a full-scale rollout. Here we provide a glimpse of how we structure our lending programs. Each program has a dedicated budget which has ranged from 300 million to 3 billion pesos with an expected level of delinquencies aligned to the risk profile. These initiatives are data-driven, leveraging extensive historical client data. Since the launch, 54 programs have been conducted, of which 24 have been regularized or fully implemented, 17 have been decommissioned, while 13 are still ongoing. The impact is significant. Regularized programs now account for 16% of the outstanding non-institutional loans. This approach supports the bank's long-term growth strategy. Rather than focusing solely on short-term asset quality metrics, we prioritize sustainable portfolio expansion. And as the portfolio continues to grow, the relative impact of NPLs from these lending programs is expected to lessen over time, given the smaller relative size of a lending program to the overall bulk. As part of our commitment to digital leadership, the bank continues to operate seven client engagement platforms with steady growth in enrolled and active users, as shown at the bottom of the table. Transaction volume is increasingly shifting to digital channels driven by our efforts to expand partnerships, introduce new functionalities, and enhance the overall customer experience. The newly launched features for each platform are highlighted at the top of the slide. As of October 2025, we now have 136 API partners up from 74 in 2019 and offer more than 17,000 brands up from only 749 in 2019. Delving into the BPI mobile app. From 2023 to 2025, the new VPI app has evolved from offering basic services to delivering comprehensive digital banking solutions that allow clients to move, protect, and grow their money. Key enhancements include under move, the introduction of mobile check deposit, cardless withdrawal, and pay via QR as key features to deposit, transfer, and make payments. Under the Protect, the card control features now allow clients to manage their card usage by themselves, including either temporarily or permanently blocking a card or securing a replacement and securing a replacement without the need to contact the call center. If you've ever misplaced your wallet but you know it's somewhere safe or left your credit card at a restaurant, you can now temporarily block it until you retrieve it without needing to replace the card. Under Grow, clients can now Open time deposit and investment accounts and get personalized financial advisory with a track and plan feature. Key milestones for the app include 8.7 million enrolled users with 4.8 million active users. 90% of what would be branch transactions are now done digitally. 51% of new to bank clients since January have been onboarded digitally. and an app rating of 4.8 and 4.5 for the Android and iOS apps respectively after the introduction of prompted ratings. One of the bank's first initiatives in artificial intelligence is the launch of the BPI Express Assist Intelligence, or BAI, BPI's generative AI-powered platform designed to serve as a digital companion for our unibankers. BAI enhances productivity by searching and summarizing information from the bank's knowledge base up to three times faster than manual document searches, enabling unibankers to respond to customers with greater confidence and efficiency. In its first year, BAI received 99% positive feedback and achieved an app satisfaction rating of 9 from its initial 1,800 users. One year post-launch, over 8,000 users have been defined to access BAI and engage with the platform by asking over 300 questions per day. On screen now is a sample response from an inquiry posted to BAI asking for the minimum age to open a time deposit. The AI can communicate not only in English, but also in Tagalog and Cebuano, two of the most widely spoken languages in the country, enabling it to connect with a broader user base through more natural and personalized conversations, resulting in higher user engagement and satisfaction. Moving on to agency banking, where we continue to expand the bank's customer reach in underserved areas through technology-enabled service delivery. For the third quarter of 2025, our partner base has increased to 33 brands from 25 brands, mainly from additional banner stores under the RRHI group. We now have 6,943 partner stores, 637 of which can process cash-in, cash-out transactions. Agency banking continues to demonstrate strong momentum, with product sales reaching 170,000 in the third quarter, a 20-fold increase from just 8,500 in the first quarter of last year. This translates to an average of 1,847 products sold per day. Deposit and withdrawal transactions also rose significantly to over 48,000, effectively expanding the physical presence of BPI without having to build a physical branch ourselves. Moreover, product sales per store accelerated, rising to 24.9 in the third quarter, up from 13.8 in the previous quarter, and just 1.6 from the first quarter of last year, highlighting improved productivity and deeper client engagement at the store level. Earlier this month, the bank marked a major milestone in its regional expansion with the opening of BPI Wealth Singapore, strategically located in the Marina Bay District. Authorized by the Monetary Authority of Singapore and operating under a capital market services license, BPI Wealth Singapore is equipped to manage investment portfolios, conduct investment research, and execute trade transactions. Initial offerings include global portfolio accounts under both discretionary and non-discretionary mandates with a minimum amount of $2 million. This launch represents a major step forward in BPI's mission to bring its wealth and asset management expertise to a broader client base. To close, let me highlight a few points. We delivered another strong revenue-led performance for the third quarter, reflecting solid execution across our businesses Our balance sheet remains healthy with ample liquidity and strong capital levels. Asset quality continues to be manageable with adequate allowance and maintaining BPI's strong credit culture. And we continue to accelerate growth through digital leadership. We remain focused on executing our strategic priorities and navigating the continuously evolving operating environment. Thank you, and we'll open the floor to questions.