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Bank of Philippine Islands
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
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Fundamental View
AS OF 13 Aug 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, well-managed asset quality, stable profitability, and comfortable liquidity.
Business Description
AS OF 13 Aug 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, 1% to MSMEs and 26% to retail as of 2Q24. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 14 Aug 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
Sustaining or further improving returns in 2024 is a challenge without the rates tailwind, so BPI has focused on unsecured retail growth, which has put pressure on asset quality, and paring down provision reserves. We see further AQ risks given prolonged high interest rates and inflation, but BPI’s large corporates-focused book (73% of total loans) provide comfort and its provisioning capacity has improved meaningfully versus during or pre-pandemic.
The acquisition of Robinsons Bank was completed on 1 January 2024 has weakened BPI’s NPL cover and overall asset quality metrics but to a manageable extent. 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 Metrics
AS OF 13 Aug 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| PPP ROA | 2.42% | 2.01% | 2.41% | 2.52% | 2.86% |
| Reported ROA (Cumulative) | 0.98% | 1.10% | 1.59% | 1.93% | 2.00% |
| Reported ROE (Cumulative) | 7.7% | 8.4% | 13.1% | 15.4% | 15.5% |
| Net Interest Margin | 3.49% | 3.30% | 3.59% | 4.09% | 4.26% |
| CET1 Ratio | 16.2% | 15.8% | 15.1% | 15.3% | 14.2% |
| Total Equity/Total Assets | 12.5% | 12.1% | 12.2% | 12.4% | 13.1% |
| NPL Ratio | 2.68% | 2.49% | 1.76% | 1.84% | 2.20% |
| Provisions/Loans | 1.94% | 0.91% | 0.58% | 0.22% | 0.31% |
| Liquidity Coverage Ratio | 232% | 221% | 195% | 207% | n/m |
| Net Stable Funding Ratio | 154% | 155% | 149% | 154% | n/m |
CreditSights View
AS OF 14 Aug 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 1H24, and we see further risks from high rates and inflation. 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: August 14, 2024
Recommendation Changed: August 19, 2022
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