Bank of the Philippine Islands

Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the first quarter of 2026. I'm Haj Narvaez. I'll be your moderator for this session. 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, while the rest of our participants are dialing in remotely. I'm pleased to introduce you to our speakers and panelists this afternoon. T.J. Lemkalko, our President and CEO. Eric Luchanko, our CFO and CSO. They will be joined in the panel for the Q&A by Prem Arshal, Head of BPI Wealth. Jin Bi Go, 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. We're also joined today 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.J. Lamcalco, followed by our CFO and CSO, Eric Luchanko. who will walk you through the first quarter performance highlights and likewise 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.

Thank you very much, Hodge, and a nice afternoon to everyone joining us today. I see a lot of familiar faces here, and I'm sure there are a lot of familiar faces on the call. I look forward to a very engaging conversation after Eric's report. But let me start off by making a couple of points that despite the challenging conditions brought about by the Middle East crisis, the bank managed to report net income for the first quarter. That's 1.7%. higher than last year and 4.9% higher than last quarter. This was really driven by our continued strong revenues that were up 13.9% despite and hindered by operating expenses that were up 15.8% versus last year. We can go into some of the details why the operating expenses were higher than expected, but we continue to expect that they will be back to normal levels by year end. All this led to pre-operating provisions that are up 12.4%. Due to the Middle East crisis, we increased provisioning to account for the increased risk in the consumer book arising obviously from the Middle East crisis where we saw relatively larger jumps in the NPL in both the SME and the microfinance books. But despite increasing provisioning in our NPL, we saw a decrease sorry, despite increased provisioning in our MPL coverage fell due to really the MPL increase in our corporate loan book where the increases came from a number of corporate accounts that were substantially covered by collateral. Finally, I will talk a little about how this Middle East crisis is affecting our outlook on loan growth and the way we are provisioning. We are trying to provision ahead of that, but without really spending all of this conversation, all of this time in the Middle East crisis, allow me also to talk a little about the progress we're seeing in our other businesses. Eric will go through some of those points. We're very happy to report that our agency banking initiative continues to grow. As of today, we have 1,320 stores where our customers can actually do deposit and withdrawal transactions outside of our branches and outside of our ATM and cash acceptance machines. Jimby can talk a little about our digital branches and how we continue to roll this out to give a better selling and advisory experience for our customers. And then we'll also make a short presentation about the progress of our digital offerings where we continue to believe that we have the leading mobile app, we have the leading business platform in BizLink and how we've updated that and Louie can talk about that and how we've also updated our BPI trade where we continue to make headways into equity trading for our customers. So with that, I'll turn this over to Eric, and I'm looking forward to a wonderful, engaged conversation later.

Thank you, TG, and welcome to everyone joining us on this call, both in person and virtually as well. And so, good afternoon to all, and we'll be presenting our first quarter results. These results showed more moderate growth compared to previous quarters, but still reflect strong levels of operational performance that we believe will show continued outperformance versus our peers. The highlights are as follows. On profitability, for the quarter, the bank generated net income of $16.92 billion, a 1.7% increase year-on-year, supported by revenue growth despite higher operating expenses and provisions. Return on equity stood at 14.3%, and return on assets at 1.9%. The balance sheet continued to expand, with loans increasing 13.5%, year-on-year, and deposits rising 10.4%. The bank's capital position remains strong, supported by earnings generation with a CET1 ratio of 13.9% and CAR of 14.8%. NPL ratio stood at 2.42%, with the year-on-year increase mainly driven by the shift in the loan mix. and the quarter-on-quarter increase mainly driven by the institutional loan segment. NPL coverage declined to 87.15%, though this remained supported by underlying collateral. Meanwhile, ECL cover expanded to 103.5%. The bank further strengthened its customer franchise, expanding its customer base to 18.7 million. Agency banking continued to drive scalable growth by extending its reach and deepening market penetration. At the same time, the integration of AI into the digitalization strategy is enhancing the bank's efficiencies and supporting long-term growth. First quarter net income reached 16.92 billion, up 1.7% year-on-year, with strong revenue growth moderated by higher operating costs and provisions. Net interest income stood at 39.15 billion, up 13.7% year-on-year, on loan growth of 13.5%, coupled with seven basis points of NIM expansion. Trading in Forex income rose 19.5%, anchored by a robust 32.6% jump in Forex income. These combined to drive revenues 13.9% higher to a total of $50.92 billion. Operating expenses rose 15.8% to $23.5 billion, points of higher business volume related technology and manpower costs. As we'll share shortly, much of the increase can be traced to timing issues related to booking of expenses as well as changes in the regulatory environment in the second half of 2025. Pre-provision income was at $27.42 billion, up 12.4%. Provisions rose 83.3% to $5.5 billion, reflecting normalization of credit costs and base effects. As the first quarter of 2025 saw the continued drawdown of prior reserves. Compared to the prior quarter, net income increased 4.9%, driven by higher net interest income and lower operating expenses and provisions. OPEX declined 11.7% as costs normalized following the typical year-end expense buildup in the fourth quarter. Provision operating profit expanded by 4.1% to 27.4 billion. Earnings per share stood at 3.2 pesos per share at the end of the first quarter, up 1.5% year-on-year. Profitability remained healthy with an ROE of 14.3% and an ROE of 1.9%. Turning to the balance sheet, total assets continued to expand, reaching 3.7 trillion, up 13% year-on-year. driven by the expansion of the loan and securities book. Those loans stood at 2.61 trillion. It was slightly lower quarter-on-quarter, reflecting softer demand and our prudent origination of loans. On a year-on-year basis, however, loans grew 13.5% with expansion recorded across all segments. Deposits increased to 2.84 trillion. up slightly quarter and quarter and 10.4% year on year, driven by continued customer flows and a stable funding base. The CASA ratio is marginally to 41 basis points quarter and quarter to 60.29% while the loan to deposit ratio climbed year on year to 91.95%. Versus last year, Those loans expanded 13.5% year-on-year to 2.61 trillion. Non-institutional loans increased to 829 billion, up 24.9% year-on-year. The increase in non-institutional loans was led by SME loans of 96.3% year-on-year, credit card loans up 33.3%, personal loans up 26.9%, These personal loans includes 18 billion of teachers loans, which accounted for which increased by 72% year on year. Auto loans were up 19.3%. And these auto loans include 5 billion in motorcycle loans, which increased 22% year on year. Mortgage loans was up 12.1%, and microfinance loans up 16%. The loan mix The loan mix continues to shift towards the higher yielding segment, with non-institutional loans rising to 31.7% from 28.8% last year. This shift supported total loans growth of 13.5% year-on-year, despite broadly flat quarter-and-quarter loan balances. In the first quarter of this year, NIMS stood at 4.57%, remaining broadly stable quarter-and-quarter, and improving seven basis points year and year, mainly driven by lower funding costs. We'll delve into our perspective on asset quality in the later slides, but I wanted to show you here that even after accounting for the cost of credit, NIMS are still providing strong profitability to the bank. Adjusting NIMS for risk based on provisions, NIMS widened by four basis points to 3.92% quarter and quarter. If we look at risk adjusted NIM based on the net NPL formation, we do see a sharper decline in margins by 42 basis points to 3.39% due to an outsized net NPL formation last quarter. And we'll discuss that a little further. We'll discuss that further a little later. On the funding side, total funding stood at up 14.4% year-on-year and 1.7% quarter-on-quarter. Year-on-year total deposits increased 10.4% and continues to be the primary source of funds, even though borrowings rose by 84.6%. Casa, meanwhile, is up 6.5%, which is faster than last year's pace. Key funding ratios remain stable with a loan-to-deposit ratio of 91.9% and loans-to-total funding at 84%. We continue to strengthen our deposit franchise led by the mass market customer segment, which grew 60% year-on-year and continues to deliver the best CASA ratio across our customer segments. Institutional deposits also posted sustained momentum, recording growth over the past three months in the high teens year-on-year. Fee income stood at 10.54 billion, down 3.1% on the sequential quarter, following a seasonally strong fourth quarter and fewer number of days in the current period. Year on year, fee income grew 13.9% on strong contributions from cards, wealth management, insurance, transaction banking, retail loans, business banking, corporate loans, and investment banking. The card segment saw a 13.7% increase driven by higher billings, increased service charges from stronger cross-border fees, improved collections recovery, and higher SIP-related transaction volumes. Wealth management fees were up 11%, driven by a higher volume of assets under management, which rose 18.4% year-on-year and surpassed the $2 trillion milestone to reach $2.03 trillion. Income from insurance, up 10%. was mainly driven by higher contributions from BPI AIA and BPI MS. Royalty fees and branch commissions further contributed to the overall increase. Transaction banking was up 26.9% mainly from higher supply chain fees supported by increased invoice volumes and larger transaction values from RTA clients. Securities brokers and investment banking increased 80.2% attributable to higher deal activity, including in the project finance space. These were partially offset by declines in asset sales, down 61.9% due to last year's one-off sale of a large bank property. Rental, which declined 27.7% as several bank premises and equipment were no longer leased. ATM and digital channels decreased 2.6% as higher fees led to lower transaction volumes. and reduced usage. Total operating expenses amounted to $23.5 billion, up $3.2 billion, or 15.8% higher year-on-year, with increases recorded across all expense categories. Land power costs reached $8.1 billion, up 8.2% to up 8.2% or 621 million driven mainly by salary adjustments and the higher headcount. Technology expenses reached 4.7 billion, up 660 million or 16.5% year-on-year due to higher spending on IT outsourced services, software subscriptions, and maintenance in line with the bank's digitalization initiatives. Other operating expenses increased to 8.4 billion up 1.69 billion or 25.2%, with volume-related expenses accounting for 41% of the increase. Overall, the key drivers of the year-on-year increase in OPEX were volume-related expenses followed by technology and manpower. As referenced earlier, booking delays relating to tech and other expenses, as well as changes in the regulatory environment, particularly with VAT on digital services. led to the sharp increase in costs this year versus last. Adjusting for these factors, operating expense growth would have been more moderate at 13.4% year on year. Notwithstanding that, the bank continues to demonstrate strong operating performance with efficiency gains translating to a cost to income ratio of 46.2%. Despite the customer count doubling to 18.7 million since 2022. The cost base has grown to add a considerably more measured pace supported by active headcount management and a pivot towards digital platforms and tech-enabled channels, including agency banking partner stores. CET1 capital stood at $404 billion, up 0.4% from last quarter and 5.9% from last year. While the OCI volatility weighed on the capital in the first quarter, the bank's overall capital position remains solid. The CET1 ratio stood at 13.9% and CAR at 14.8%, both well above internal and regulatory thresholds, despite the increase in risk-weighted assets and capital distribution, as well as the lower overall other comprehensive income. Turning to asset quality, non-performing loans increased quarter and quarter to 62.9 billion with the NPL ratio rising by 24 basis points to 2.42%. Provisions which continue to be guided by ECL declined quarter and quarter to 5.5 billion equivalent to a credit cost of 87 basis points for the first quarter. This brings point in time NPL coverage to NPL coverage of 87.15% under PFRS 9 and 112.4% when including the surplus reserves for performing loans in accordance with BSP Circular 941. This lower NPL cover is supported by collateral strength, expectations for recovery, and risk absorption buffers. Asset quality pressure was mainly driven by institutional loans, whose NPL ratio climbed 21 basis points quarter-and-quarter to 1.19%. While the increase in the NPL ratio was relatively small, it had an outsized effect on the overall NPL level and NPL ratio, given the segment's high share of the overall bulk. This new NPL formation centered on a few institutional accounts, one of which we had anticipated to turn NPL and thus had provisions for that we had already provisioned for. The combined loss reserves and collateral coverage for this specific loan amount to 1.8 times the value of the NPL, mitigating our downside risk. Other significant contributors to the higher NPL ratio were accounts with company-specific issues born out of operational disruptions and collection challenges. On the flip side, we also have visibility on certain accounts currently classified as NPL that we expect to revert back into current status within the second quarter, which should offset much of the hits that we're taking from this current quarter. SME loans also saw a 98 basis point uptake on a quarter and quarter basis in the NPL ratio, driven by higher delinquencies in the 2025 and 2024 vintages. Delinquencies were most pronounced in companies in the wholesale and retail sectors, followed by construction and rental. Microfinance loans warrant some closer attention as well, as the NPL ratio increased 74 basis points with delinquencies observed across products and regions. In context, microfinance remains a relatively small portion of the total loan portfolio. For credit cards, the NPL formation is largely from the same group we had previously identified, which is clients aged 40 years and below, lower-income borrowers earning less than $40,000 per month, and post-pandemic acquisitions booked between 2022 and 2024. Meanwhile, mortgage, auto, and personal loans reported relatively stable or declining NPL ratios. We continue to maintain ECL coverage of at least 100% across all loan segments. These quarters provisions, coupled with moderate ECL formation, widen the ECL cover quarter-in-quarter to 103.5%, from 100.9% to end last year. The corresponding point-in-time NPL coverage levels are shown in the slide, as well as the total cover, compromising reserves and collateral. NPL remains well covered by a combination of these reserves and collateral, with a total collateral coverage of 138%. Institutional, business banking, marketing, auto credit cards, and credit card loans all post coverage ratios above 100%. Even the least covered segments, which are personal loans and microfinance, maintain a solid coverage at around 93%, even while representing just a small share of the total portfolio. Like in previous quarters, we will walk you through the performance of our lending businesses from the perspective of risk-adjusted revenues and margins. This table summarizes loan-related revenues for the first quarter of 2024, 25, and 26, alongside their corresponding net NPL formation by loan segment over the same period. From the first quarter of 24 to first quarter of 2026, revenues across the loan book increased by 8.67 billion, approximately 6.4 times the 1.35 billion increase in net NPL formation. Looking at non-institutional loans, they delivered strong growth in revenues at 8.3 billion, which comfortably offset the 390 million increase in net NPL formation. Overall, growth in the non-institutional loans drove a sizable net revenue uplift, even after factoring in the asset quality impact. The same dynamics can be observed in the last two columns, comparing the first quarter of 2025 and first quarter of 2026. This highlights the thinking behind our commitment to growing the contribution of the non-institutional loans and the benefits of a diversified portfolio in driving better performance. Looking at it from a margin perspective, loan yields for the non-institutional segment have largely held firm at around 12.74%, providing a comfortable buffer against net NPL formation of 3.35%. Deals for the institutional business have seen a sharper drop versus last year's average, as institutional borrower rates adjust in step with the lower BSP policy rates. The uptick in the institutional businesses NPL, net NPL formation to 0.78% in the first quarter of this year due to select NPL accounts as discussed earlier. Aside from delivering wider risk adjusted margins, the non-institutional segment has fueled revenue growth given its robust expansion since 2022. The segment has delivered a CAGR in gross a gross loan ADB of 30.7% from 2022 to the first quarter of 2026. Moving on to our strategic initiatives update. In line with our commitment to digital leadership, the bank continue to enhance our seven client engagement platforms. Starting from the left, the BPI app, which is our main operating app for retail clients, now includes a new pay bills experience, Instapay, P2B non-QR billers, real-time payments, Panagosha credit line ESOA, and partner store deposits, which broaden the app's role in facilitating everyday financial transactions. We continue to enhance payments efficiencies through refinements of user interface to improve the overall ease of usage. Next, for our VIVE eWallet, signups have reached 2.7 million with 78% being Vibe Pro users. The BPI BizLink facility for corporate clients introduced key upgrades such as transfer to own, pay bills, pay BPI, and payroll to seamlessly migrate clients to the mobile app and provide ease of transaction approval. The BPI BizCo app for SMEs now serves more than 30,000 users supported by continued enhancement of financial services which strengthen client retention and drive platform usage. The Banco app remains central to financial inclusion as it continues to empower our everyday Masang Pilipino, C2D earners, and SEME entrepreneurs through accessible, reliable, and digital-first financial solutions. For BPI Wealth Online, which serves high net worth client individuals, maintained its active user base at 2.8,000, yeah, 2.8,000, up 82% year on year through sustained activation initiatives. Finally, BPI trade continues to strengthen engagement among equity investors with a higher transaction count in 2026 as it brings a new funding process with upcoming features on e-deposit and e-reserves, which will widen accessibility. Across all platforms, we continue to expand capabilities in open banking and improve the UI UX for a more seamless experience. As of March, we have 129 API partners, up from 74 in 2019, supporting over 10,000 brands, up from only 749 in 2019. Contributing to the strong momentum from 2025, we now have 34 agency banking partners, more than 7,000 partner stores, which further strengthen our foothold in Visayas and Mindanao. Total products sold per quarter reached nearly 177,000, up 87% from last year, and more than 20 times from two years ago, with deposits and insurance as the primary products sold. Twenty agency partners equivalent to 1,320 partner stores are currently capable of deposit and withdrawal transactions, volume of which increased to 88,400 in the first quarter, up 5.2 times compared to last year. Transactions are fast and convenient using a barcode-enabled feature on the BPI mobile app. Customers can initiate deposit transactions to a BPI account seamlessly, which are then fulfilled at participating partner stores. This completes a critical piece of the agency banking model, enabling both cash in and cash out transactions within retail environments without the need to visit a traditional branch. Moving on to reengineering and process automation initiatives, In the past few years, we implemented 149 projects, 82 in 2025 alone. These fall into three main types of projects, namely desktop automation tools, approved workflow automation, and RPA bots. Moving forward, the projects already implemented will deliver an annual savings of 139 million and reduce the headcount requirement by 181 headcount. and helping our business units reality resources and reassign people to higher value added roles. Highlighting some RPA achievements from some of our key business segments. In remittances, we implemented email sending bots for Instapay, Passanet, and even foreign remittances to improve our customer experience, reducing complaints through this more proactive approach, and avoiding the hiring of 25 additional manpower. In agency banking and BPI wealth, we've implemented encoding bots to address system booking requirements and investment subscription upon opening for wealth builder, avoiding the hiring of 10 outsourced personnel. Moving forward, we will continue to introduce new RPA initiatives for running the bank, streamlining workflows and reducing operational inefficiencies, bridging the gap between our legacy processes and the demands of a modern digital first economy. In the case of AI adoption, we take a disciplined use case driven approach. For fraud research and marketing, we're looking at AI machine learning driven systems that will detect potentially fraudulent transactions and assist credit analysts in the review of loan applications to detect risks and malicious intent. We use AI to supplement knowledge gaps for clients with AI scanning for data and references to help craft targeted marketing strategies at various stages of our clients' life journey. AI also assists our marketing teams in developing competitive, relevant, and hyper-personalization campaigns. In operations, we're using intelligent document processing to automate manual, repetitive, low-risk work, such as data capture and document review, so our teams can focus on higher-value activities and scale capacity without proportional increase in cost. For BPI customers, we have rolled out DAI in our branches to simplify access to policies and guidance, enabling more consistent high quality service. Our data science team also builds advanced machine learning models to better understand individual customer needs and behaviors, helping us personalize products and offers in ways that can improve satisfaction and support revenue growth. Finally, beyond mainstream adoption within IT, we're also evaluating additional AI use cases to further strengthen risk management and governance, enhancing real-time monitoring, improving decision support, and helping us respond earlier to emerging risk. In its sustainability efforts, BPI remained busy in the first quarter of 2026. We issued 50 billion worth of CGLAS social bonds, funding projects with clear social impact under our 2025 sustainable funding framework. We also expanded BPI's branches, offering EV charging stations to 10 branches nationwide. Our fraud awareness program completed two engagements in the first quarter of this year, reaching 155 participants. Following BPI's credit cards, which use 100% recycled PVC, BPI debit cards adopted the same innovation. Lastly, in line with our targeted interval of five to six years, BPI engaged an external consultant for the bank's double materiality assessment, which shows the impact of ESG topics on stakeholders and on BPI's financial performance. The endeavor engaged over 7,000 stakeholders to assess and refine BPI's ESG priorities. We remain well-recognized for these efforts, and as of March this year, BPI has received nine ESG-focused awards. Beyond just ESG, however, BPI has also been well-recognized for its various initiatives, and we list here various awards and recognitions received through the first quarter of 2026. In particular, we would like to highlight that in March, BPI led all Philippine companies on time and statistics, Asia Pacific best companies of 2026 list, ranking 10th out of 500 companies in the region. BPI also placed 7th and was the only bank included in the top 20 companies recognized as a great place to work in the Philippines. Let me close with a summary. On profitability, our revenue-led net income growth was tempered by higher effects and provisions, but we remain to have strong operational metrics. We continue to maintain a healthy balance sheet with ample liquidity and capital. Overall, asset quality remains within our risk appetite, supported by adequate buffers. And finally, we further strengthened our leadership in digitalization by scaling AI and data science. Thank you, and we will open the floor to questions in a couple of minutes after we get set up.