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Bank of Philippine Islands
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
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Fundamental View
AS OF 08 Nov 2024Bank of the Philippine Islands (BPI), the 3rd largest bank in the Philippines by assets, is rated Baa2(stable)/BBB+(stable)/ BBB-(stable).
We view the bank as too big to fail given its systemic importance in the country. There is also a strong probability of support from the government in addition to its main shareholder, the Ayala Corporation if needed.
BPI has a long history, and we view it as a fundamentally sound bank with prudent capitalization, strong and improved profitability, and comfortable liquidity. Asset quality remains relatively well managed but we are keeping an eye on strong growth in the non-wholesale book.
Business Description
AS OF 08 Nov 2024- The history of the Bank of the Philippine Islands traces back to 1851. It is the oldest bank in the Philippines and South East Asia. It was first listed on the Philippine Stock Exchange in 1971, and became a universal bank in 1982.
- Ayala Corporation, one of the biggest conglomerates in the country, became BPI's dominant shareholder in 1969. Ayala Corp still holds a 49% stake in the bank.
- BPI has been acquisitive across the years. It merged with Far East Bank and Trust Company and acquired Ayala Insurance Holdings Corp in 2000. It acquired DBS Bank Philippines in 2001 and Prudential Bank Philippines in 2005. DBS was a shareholder of BPI but exited its position in 2013. More recently in January 2024, it completed the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 73% of its loan book outstanding to corporates, 2% to MSMEs and 25% to retail as of 3Q24. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 08 Nov 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
Sustaining returns is a challenge without the rates tailwind, so BPI has focused on unsecured retail and MSME growth, which has put pressure on asset quality, and paring down provision reserves. We see risks to asset quality from the strategy, but BPI’s large corporates-focused book (73% of total loans) provide comfort and provisioning capacity has improved meaningfully. Provision reserves however have limited room to be further reduced, unlike BDO and MBT.
The acquisition of Robinsons Bank was completed on 1 January 2024, and it opens BPI up to new customer segments such as teachers and motorcycle loans. The current footprint is small but we are wary of the brisk intended growth.
Key Metric
AS OF 08 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.42% | 2.01% | 2.41% | 2.52% | 2.92% |
| Reported ROA (Cumulative) | 0.98% | 1.10% | 1.59% | 1.93% | 2.07% |
| Reported ROE (Cumulative) | 7.7% | 8.4% | 13.1% | 15.4% | 15.9% |
| Net Interest Margin | 3.49% | 3.30% | 3.59% | 4.09% | 4.29% |
| CET1 Ratio | 16.2% | 15.8% | 15.1% | 15.3% | 14.8% |
| Total Equity/Total Assets | 12.5% | 12.1% | 12.2% | 12.4% | 13.6% |
| NPL Ratio | 2.68% | 2.49% | 1.76% | 1.84% | 2.30% |
| Provisions/Loans | 1.94% | 0.91% | 0.58% | 0.22% | 0.32% |
| Liquidity Coverage Ratio | 232% | 221% | 195% | 207% | n/m |
| Net Stable Funding Ratio | 154% | 155% | 149% | 154% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BPI is a fundamentally sound bank. Its traditionally conservative approach has led to a loss of loan market share in the past, as well as a lower NIM than BDO and MBT. It took a well-balanced approach towards growth during the pandemic, but is now growing briskly in higher yielding retail and MSME loans and paring down provision reserves to sustain returns in absence of rate tailwinds. Asset quality slipped in 9M24, and we see further risks from the strong focus on higher yielding segments. Still, we remain comfortable with BPI given the large corporate book (73% of loans) and underwriting record, and strongly improved profitability. The target CET1 ratio level has been lowered but to a still acceptable 14% level. Its ongoing digital investments have driven growth and efficiency.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: August 19, 2022
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