Bank of the Philippine Islands

Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the fourth quarter and full year of 2025. I'm Haj Narvaez, your moderator for this session. Just as a reminder, we're conducting this briefing in a hybrid manner with our BPI speakers and panelists here in our headquarters of Tower 2 of Ayala Triangle Gardens, Makati City. We also have some participants who are dialing in remotely. I am pleased to introduce you to our speakers and panelists this afternoon. First, T.G. Lemkalko, our president and CEO. Eric Lochanco, CFO and CSO. They will also be joined in the panel for the Q&A by Tere Marshall, head of BPI Wealth. Jin B. Goh, head of Consumer Banking. Louis Cruz, head of Institutional Banking. Jenny Lacerna, Head of Master Retail Products, and Dino Gassman, Treasurer and Head of Global Markets. We are also joined by the rest of the BPI leadership team in this call. This afternoon's agenda will begin with opening remarks from our President and CEO, T.G. Namkauko, followed by our CFO and CSO, Eric Lochanco, who will walk you through the fourth quarter and full year performance highlights. as well as provide updates on our digital platforms and strategic initiatives. The floor will then be open to questions from the audience. Please note the call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks.

Very nice. Welcome to everyone joining us on this call today, both here at Tower 2 and virtually. Very happy to report that despite the domestic issues that this country faced towards the second half of last year, DPI managed to a 7.4% increase in our net income after tax to 66.6 billion pesos, the details of which our CFO, Eric Luchanko will go into. This was really driven, from my perspective, by our disciplined funding and our disciplined pricing on loans, which also grew 14.7%, much faster than the industry, and allowed us to maintain our NIMS. Our net interest income grew 14.7% for the year. We also managed to keep OPEX growth at 9.9%, much slower than previous years, And really for me, one of the big achievements here was our ability to manage our tech spend, which if most investors would recall in the early years was growing at 28%, 25%. Previous year, we grew at about 14%. This year, we only grew at 12%. We see that tech spend should continue to moderate going forward as we make changes in our tech stack and look at other vendors to supply our technology. Part of Eric's presentation today will also be to give more details on our provisioning. I know there's been some questions about that, and so we're happy to present some of our thinking behind it, and also to take questions in detail about our provisioning and the risks we are taking as we shift our book to more consumer-oriented. Eric will also delve into a review of our progress on our strategic initiatives, but I'd really like to point out our success three fields, our sustainability, our transformation of our branches, and our agency banking. Then finally, I think we'll have a Q&A at the end where I will be joined by our major business leaders as well as the rest of the senior team is here, physically present. So in line with our real desire to be as open to our investors, we'll answer any questions. So with that, Eric, I'll turn it over

Good afternoon and thank you to everybody joining us for our fourth quarter and full year 2025 earnings call. We're pleased to report that the bank delivered another year of strong results, leading to another year of record income, the highlights of which are as follows. On profitability, the bank delivered a solid full-year net income of 66.62 billion, a 7.4% increase from the previous year, driven by strong revenues and positive jobs. Fourth quarter earnings of 16.13 billion, up 14.7% year-on-year, highlight strengthened profitability without the typical seasonal boost. Overall, sustained performance led to a robust full-year return on equity of 14.5% and return on assets of 2%. The balance sheet continued to expand, with loans up 14.7% year-on-year to $2.6 trillion, while deposits rose 8.6% to $2.8 trillion. The bank maintained a solid financial position, with liquidity and capital buffers comfortably above regulatory minimums. Capital strength remains robust, with an indicative CET1 ratio of 13.9% and a CAR of 14.7%. Overall, asset quality remained healthy, with sufficient cover. The NPL ratio stood at 2.18%, rising 6 basis points year-on-year, but improving 11 basis points quarter-and-quarter. Coverage remained adequate, with NPL cover at 94.9%. The bank continued to expand its customer franchise, growing its client base to 18.2 million. Our nationwide reach accelerated through a network of 7,000 agency banking partners, enabling faster and more accessible services. Our wealth management business strengthened its role as a key growth driver, achieving record net funds contribution and record AUM of 1.9 trillion. In the fourth quarter, we delivered a net income of $16.13 billion, down 8% on the sequential quarter, primarily from higher provisions and the usual spike in operating expenses that we experienced in the fourth quarter. Compared to the same quarter last year, net income rose 14.7%. a strong revenue expansion more than compensated for the 8.9% increase in expenses and a 233.3% increase in provisions. Total revenues grew 19.3%, with net interest income up 15.5%, supported by a 14.7% loan growth and a 22 basis point improvement in NIMS, while fee income increased by 16.3%, pre-provision operating profit rose a robust 32.1%. For the full year 2025, we delivered a record net income of $66.62 billion, up $4.57 billion, or 7.4%, supported by record revenues that more than offset higher operating expenses and provisions. These results included revenue of $195.3 up 14.8%, driven by record net interest income, which was up 16.0%. Trading income of 8.29 billion, which surged 21.3% as we capitalized on declining interest rates in the third quarter to lock in some gains. Record fee income of 38.96 billion, up 9.1% on sustained volume growth in key fee businesses. Operating expenses were up 9.9% from volume-related expenses and continued investment in people, products, and technology. Pre-provision income at $103.17 billion was up $16.83 billion, or 19.5%. Provisions increased 168.9% to $17.75 billion, resulting in a net income of $66.62 billion. Looking at the shareholder returns, earnings per share grew for the fourth straight year, reaching 12.62 per share, a 7.1% increase from the previous year. Sustained earnings supported profitability with ROE at 14.5% and ROA at 2%. Moving on to the balance sheet. Total assets reached $3.65 trillion, reflecting a 10% year-on-year increase, driven by higher loans and securities investments. Gross loans grew by $2.62 trillion, up 14.7% year-on-year and 8.5% quarter-on-quarter, with broad-based expansion across all segments. Deposits increased 8.6% year-on-year to reach $2.84 trillion, primarily from growth in time deposits. CASA ratio finished the year at 60.7%, while the loan-to-deposit ratio reached 92.4%. Credit demand remained strong, with gross loan growth accelerating 8.5% in the fourth quarter. Year-on-year loan growth eased from 18.2% in 2024, but remained robust, increasing by $336 billion, or 14.7%. and outperforming the 9.7% industry average for universal and commercial banks. Non-institutional loans accounted for close to half of that growth, rising $163.9 billion or 25.8% year-on-year. Non-institutional loans posted steady gains, with SME loans up 79.7%, credit card loans up 31.9%, Personal loans up 28.3%. Personal loans include $16 billion of teacher's loans, which increased 83% year-on-year. Auto loans was up 22.9%, with auto loans including $5 billion in motorcycle loans, which also increased 23% year-on-year. Mortgage loans was up 15.7%, and microfinance loans up 15.3%. This loan expansion highlights the bank's strong momentum, even against a higher base following robust expansions for non-institutional loans in 2024 and 2023. On NIMS, our annual NIM has expanded consistently since 2021, reaching 4.59% in 2025, up 28 basis points from last year, fueled by a 26 basis point jump in asset yields, supported by a larger share of retail and SME loans, and a slight decline in funding costs. On a quarter-and-quarter basis, though, MIMS fell by four basis points to 4.58%. This was mainly due to a drop in loan yields from the institutional loans, as this segment adjusts faster to the policy rate movements. Please note that in the left chart, we also show a risk-adjusted NIM, which is based on NIM adjusted for the net NPL formation. Despite the drop in policy rates, risk-adjusted NIMs for 2025 hit 3.97%, up 36 basis points year-on-year, which is our highest figure over the past five years. On funding, we're optimizing funding by shifting from time deposits to bond issuances which are supported by incentives for sustainable financing, resulting in a lower effective yield versus top TD rates. While deposits remain the core funding source, borrowed funds grew 37% and now account for 7% of total funding. Key funding ratios remain fairly stable, with a loan-to-deposit ratio of 92.4% and loan-to-total funding at 85.7%. We continue to prioritize strengthening our deposit base with greater focus on CASA. Our CASA mix remains predominantly retail, comprising 77% of the total, including contributions from microfinance and SMEs. Growth in CASA is being driven by the core mass and mid-market segments, driven by expansion in the client base and higher average balances. We saw sustained growth in fee income. up 9.1%, led by our biggest fee businesses, cards, wealth management, and insurance, which collectively contribute about 60% of total fees. Card fees grew by 13.8%, driven by an 8% increase in customer count, 17% increase in transaction count, and 4% increase in average transaction amount. contributing to a 21% increase in billings from retail, cash advances, and installment loans. Wealth management fees increased 6.6% on record net contribution from clients. AUM soared 18.7% to close the year at 1.91 trillion, led by a 16.2% increase in private wealth, 23.7% increase in personal wealth, and a 17.7% jump from the institutional business. Wealth's client base reached $1.46 million, up 26.3% year-to-date September. Our market share in the trust industry rose by 35 basis points to 21.1%. And we hold a commanding market share in investment funds at 31%, and a 30.5% market share in employee benefits. Income from insurance, up 11.4%, is comprised of, one, equity income from joint ventures, two, royalty fees, and three, branch commissions. In 2025, equity income was up 13.6%, royalty fees up 21.6%, and branch commissions up 4.6%, following a high base in 23 and 24, driven by the launch of new products. These increases were partly offset by the decline in fees from retail loans, which was down 10.2%, largely due to the absence of last year's one-off collections from housing loan penalties and late payment charge adjustments following the curing of CTS accounts. ATM and digital channels down 3.9% as the bank discontinued its e-wallet loading service for GCash and Maya. Remittances down 2.8% due to heightened competition from a new market entrant, leveraging Instapay and Pesonet-enabled transfers. Branch service charges down 2.6%, owing partly to four fewer banking days versus last year, and the continued migration of over-the-counter transactions to online channels. Credit quality remains healthy, even as portfolios expand into higher-yielding segments. NPLs increased to $56.9 billion, but the NPL ratio remained broadly stable at 2.18%. Provisions totaled $17.75 billion, bringing credit costs to 75 basis points for the year. NPL coverage remains adequate at 94.9% and strengthens to 122.9% under BSP circular 941, providing a solid buffer against potential credit losses. across segments except for institutional loans and in particular SME, SME mortgage, microfinance and auto loan segments. All recorded year-on-year increases in their respective NPL ratios. The credit card NPL ratio increased by 38 basis points year-on-year to 4.68% and remained stable quarter-on-quarter. The rise in NPL is largely driven by test programs which account for 59% of the volume while regular programs account for the remaining 41%. Delinquencies are concentrated in three groups, younger clients age 40 and below, lower-income borrowers earning less than $40,000 per month, and post-pandemic acquisitions booked between 2022 and 2024. The personal loan NPL ratio also increased, rising 172 basis points year-on-year to 7.16%. Similar to cards, deterioration is coming from younger and lower-income borrowers, including 2025 vintages, and account source through universe expansion programs. To mitigate further deterioration, we tightened credit score cutoffs with early post-implementation results showing reductions in NPL ratios. We also enhanced early-stage delinquency detection and strengthened collection efforts. These measures are expected to support improved NPL performance in 2026. The microfinance NPL ratio increased 25 basis points quarter-and-quarter and rose by 277 basis points to reach 13.3%. The rise was primarily driven by a test program that offered higher loan amounts and longer tenures to existing clients. The quarter-and-quarter uptick increase reflects the impact of recent typhoons in the Visayas, which disrupted operations of certain bank borrowers. Overall, however, recent loan bookings are performing better following the tightening of credit score requirements. SME and PL ratio remain stable, but increased 192 basis points year-on-year to 7.25%, largely driven by strong loan growth. SME loan balances doubled in 2024, which initially kept NPL ratio low. As loan growth more recently moderated slightly, the NPL ratio normalized into the 7% to 8% range, which reflects typical SME portfolio behavior. NPL formation is mainly coming from regular or non-program loans in the lower ticket segment, and select high-ticket exposures. While high-ticket cases represent less than 1% of the total NPL accounts, their larger loan sizes impact the overall NPL levels. No significant concentration has been observed by industry or by geography. Delinquencies are broadly distributed, indicating portfolio-wide, not sector-specific drivers of NPL formation. Finally, in addition to NPL coverage, we report ECL coverage at 100.9%. As shared during our previous earnings calls, our provisioning approach is anchored on ECL, which provides a forward-looking estimate of potential losses. Operating expenses rose by 9.9% year-on-year, primarily driven by technology, manpower, 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 2 million new customers since the start of the year, bringing our total customer count to 18.2 million. We enhanced our nationwide reach in a cost-effective way, rationalizing our branches while expanding our agency banking partners. We achieved operational efficiencies, reducing cost-to-income ratio further to 47.2% in 2025. CET1 capital stood at $401 billion, up $34.9 billion from last year on net income accretion. The CET1 ratio declined 115 basis points quarter-and-quarter but was flat year-on-year as earnings generation offset the drag from a higher dividend payout and robust loan growth. Capital ratios remained well above regulatory and internal thresholds and sufficient to support continued loan expansion. Strong earnings has supported sharp increases in capital distribution with the implementation of the variable dividend payout effective 2022. In 2025, the bank declared a total cash dividend of 4.36 pesos per share, up 10.1% from 2024 and 142% from the fixed dividend payout, dividend amount paid out in 2021 and the prior years. We show here a table that shows the revenues associated with loans covering the full year 2025, 2024, and 2023, and the respective net NPL formation for each loan book for the periods. From 2023 to 2025, revenues across the loan book increased by 40.4 billion, which is more than three times the 12 billion increase in net NPL formation. The non-institutional segment contributed $33 billion in revenues, surpassing the $17.3 billion increase in net NPL formation, a pattern observed consistently across all loan segments. The loan 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 costs. 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 are the segment with greater growth opportunity, consistently delivering loan yields averaging above 12%, even after factoring in credit costs or net NPL formation. 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 opportunities here. Just to highlight again the higher relative returns on the non-institutional segment, we show you a comparison of the return on assets for both the institutional and non-institutional lending segment, as well as the resulting ROA for the bank's lending business. For this exercise, please note that we used ECL formation, which largely dictates our current provisioning, rather than the net NPL formation. or actual provisions in arriving at the ROA. This way we net out the effect of higher overlays in prior years as this can be seen, as can be seen, the non-institutional lending business has delivered ROA of around 4% or higher over the period versus the sub-3% ROA of the institutional lending business. The increased share of non-institutional loans results in a blended ROA for the lending business of 3.2% in 2025, above the bank's overall ROA of 2% for the same year. Segments that posted the highest adjusted ROA, with each enjoying a figure north of 3.5%, were personal loans, credit cards, and microfinance. We believe this justifies the increased allocation of resources towards the non-institutional loans and shows that the risk-adjusted returns of the non-institutional business, including those of unsecured segments, remain stellar, notwithstanding concerns about periodic spikes in the rate of the NPL formation. At this point, Allow us to update you on what we have accomplished in four-plus years since we first shared with you our key strategic initiatives, which include increasing the share of consumer and SME loans for the non-institutional segment in our loan book, establishing ourselves as the undisputed leader in digital banking, using branches as sales stores more than service points, closing the gap in funding leadership, and promoting sustainable banking. Our lending business continues to show strong momentum, underpinned by sustained growth across all segments. Our loan portfolio expanded to reach $2.62 trillion, rising 14.7% year-on-year and posting a solid 14.3% three-year CAGR. Both institutional and non-institutional segments contributed significantly, but non-institutional lending remains the primary growth engine, growing at an exceptional 29.5% three-year CAGR, while institutional loans accelerated at a very respectable 9.5%. This faster growth has driven a big shift in our loan mix by 2025 non-institutional loans accounted for 30.5% of total loans from only 21.1% in 2021. This achievement places us one year ahead of schedule in reaching our loan mix target of 30% non-institutional, which underscores the strength of our execution and growing relevance of our consumer franchise. Overall, We've gained significant market share since 2021, as shown on the right-hand table. Market share in gross loans was up 170 basis points, credit cards up 245 basis points, auto up 520 basis points, and mortgage loans up 465 basis points. As expected, the expansion of non-institutional loans increased the NPL level but the NPL ratio continued to decline due to the faster growth of the loan portfolio and write-offs in the non-institutional loan book. Credit cost was 93 basis points in 2021, or 18 basis points higher than in 2025, reflecting the elevated provisioning during the COVID-19 period to maintain sufficient NPL and ECL coverage. In line with our commitment to digital leadership, the bank continued to scale seven client engagement platforms, which are delivering steady growth in enrolled and active users. Transaction volumes continue to shift toward digital channels, supported by new partnerships, enhanced functionalities, and continuous platform improvements. Starting from the left, the BPI app, our main operating app for retail clients, now includes a buy and sell U.S. dollar facility. regular subscription plans for investments, mobile check deposits, and virtual privilege cards, which broadened the app's role in facilitating everyday financial transactions. We also enhanced payment efficiency by reducing the Instapay fee to 10 pesos and adding over 600 new billers. In addition, BPI to BPI transfers remain free, and continuous refinements to the consumer interface and navigation are improving overall ease of use. For Vibe, our e-wallet, signups have reached 2.5 million, with 78% being Vibe Pro users. The BPI BizLink facility for corporate clients introduced key upgrades, including web approvals via SMS OTP, mobile multi-factor authentication, pay foreign with multi-currency and express check deposit to seamlessly migrate clients to the mobile app and provide ease of transaction approval. The BPI Bisco app for SMEs now serves nearly 30,000 users, boosted by e-payroll and salary-on-demand services, which aim to bring unified payments for clients and drive usage. The BPI Banko app remains central to financial inclusion, offering simplified deposits and access to accessible revolving credit. BPI Wealth Online, serving high net worth individuals through active users to 2,800, up 82% year-on-year through sustained activation initiatives. Finally, BPI Trade continues to strengthen engagement among equity investors with higher transaction count in 2025 and new features such as e-registration, e-deposit, and e-reserve to widen accessibility. Across all platforms, we continue to expand capabilities in open banking and improve UI UX for a more seamless experience. As of December 2025, we have 131 API partners, up from 74 in 2019, supporting over 17,000 brands, up from only 749 in 2019. Despite our strong push towards digitalization initiatives, we continue to invest in our physical network by opening branches in targeted growth areas, even as we consolidate and co-locate branches to optimize our footprint. In 2025, we further rationalized our branch footprint, opening three and relocating and consolidating 37 others. The remaining branches will be redesigned into digital, prime digital, and flagship formats, depending on the target segments, customer experience, and location. This approach allows us to deliver a differentiated customer experience by leveraging on our both physical stores and digital capabilities. Our branches have undergone a significant shift in their role from primarily handling day-to-day transactions to serving as advisory centers. A few years ago, only 30% of branch personnel time was dedicated towards advisory, while 70% was spent on operations. As of December 2025, operations work has decreased to 46%, while advisory now accounts for 54%. a significant shift that reflects our transformation towards higher value customer engagement. At the bottom of the slide, we highlight the branch performance following its transformation into a physical format. 6.5% increase in monthly gross acquisition, 31.8% increase in average monthly net acquisition, 8.6% increase in deposit ADB, 11% increase in digital customers, and an improvement of 15.5 percentage points in the internal NPS survey for branch stores. Closely linked to our branch rationalization initiative is our growth in our agency banking, which continues to strengthen the bank's presence beyond branches. We expanded the agency banking network to 32 partners and 7,000 partner stores, driven largely by partnerships with leading brands that strengthened our footprint, particularly in Visayas and Mindanao. What began as product onboarding partner stores has scaled rapidly. 987 of these stores are now enabled for deposit withdrawal transactions across 18 partner brands, thereby broadening our ability to serve customer segments nationwide. In 2025, all products, In 2025, total products sold reached 515.3 thousand, a five-fold increase from the 95.7 thousand recorded in 2024. This growth was supported by a significant jump in productivity to 74 from only 15 in 2024, with insurance and deposits as a primary product. Deposits and withdrawal transactions grew sharply, supported by an increase in enabled stores and stronger marketing efforts. Transaction value and volume were nearly 12 times that in 2024, reinforcing agency banking as a viable initiative to increase deposits. More clients can now access the transaction facility with the rollout of RRHI touchpoints covering seven brands and 474 stores using a barcode generated in the BPI mobile app. Looking ahead to 2026, we will accelerate the expansion of transaction-capable stores to 2,000 and elevate the customer experience. we will deploy dedicated brand ambassadors who will guide clients through product inquiries, applications, and cash transactions within partner stores. The bank delivered a solid deposit growth from 2021 to 2025, with deposits rising 45.2% to $2.8 trillion. Both CASA and time deposits increased, although the growth was led by time deposits, resulting in a decline in the CASA ratio by 16 percentage points to 63.2%. Despite the headwinds in CASA, market share in total deposits improved 67 basis points to 12.04% in 2021 to 12.71% in 2025. Corporate CASA growth remains challenged. While enrollment and transaction activity on BPI's BizLink increased, overall penetration and client engagement show room for improvement. To address this, we continue to enhance our capabilities to become the main operating bank of our clients and capture the full ecosystem of their transactions. This includes positioning BPI as the aggregator by enabling real-time payments and notifications. multi-channel reporting, and innovative collection solutions. These initiatives aim to strengthen client engagement and accelerate CASAC growth. Retail deposit acquisition continued to be a core strength. The number of new-to-bank deposit clients grew at a 30% CAGR over the past five years, driven by digital onboarding, which surged 240%, far outpacing the 14% CAGR for branch-acquired accounts. By December 2025, CASA bulk via digital channels reached 38 times its 2021 level. We also managed to increase the average balances of existing or tenured CASA year-on-year. Our client base now stands at 18.2 million as we onboarded 2.2 million customers in 2025, further advancing our financial inclusion efforts. The year was marked by major ESG milestones, including the bank's largest sustainability bond, the 40 billion SINAC bond, which was eight times oversubscribed, the conversion of 70 BPI branches to 100% renewable energy, and BPI's pioneering membership in the Alliance for Green Commercial Banks in Asia. This Friday, we will issue and list the two-year PESO BPI Supporting Individuals to Grow, Lead, and Achieve Bond, or BPI CIGLA, bonds. This will carry a C in social bond label as affirmed by SEC. Other highlights include under responsible banking, four new sustainability-focused products in insurance and remittance, BPI developed AI programs for environmental and social due diligence on global and local investments, numerous ESG-focused financing deals with key deals supporting solar, wind, and water projects in the Philippines and Southeast Asia. For responsible operations, BPI is the first Philippine bank to publish its decarbonization strategy roadmap for Scope 1 and Scope 2 GHG emissions. By December 2025, we had a total of 44 IFC-EDGE-certified green branches, doubling from 22 last year. The bank expanded its customer touchpoints through the MyBPIdita initiative to 32 partner brands and over 7,000 stores nationwide. Finally, for sustainability governance and risk management, BPI expanded its sustainability framework, adding 17 new eligible green, blue, and social categories, The bank also refined its ENS exclusion list and introduced a consolidated human rights policy aligned with the United Declaration of Human Rights. Allow me to conclude with a summary on profitability. We delivered continued improvement in profitability for the fourth consecutive year of record income led by revenue growth. On the balance sheet, we delivered strong broad-based loan growth led by non-institutional segments while the bank's liquidity and capital positions remain above regulatory thresholds. On asset quality, we maintained strong asset quality with sufficient cover. Finally, we sustained strong ROE and delivered increased dividends. We closed 2025 with confidence in our strategies and momentum. We navigate a challenging environment We remain focused on delivering consistent performance and creating value for all our stakeholders. Thank you, and we will now open the floor for questions.