Fundamental ViewAS OF 09 May 2023
Bank of the Philippine Islands (BPI), the 3rd largest bank in the Philippines by assets, is rated Baa2(stable)/BBB+(stable)/ BBB-(neg).
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 DescriptionAS OF 09 May 2023
- 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 2022, it announced the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 79% of its loan book outstanding to corporates and SMEs and 21% to retail as of 1Q23. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & CatalystsAS OF 09 May 2023
Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
BPI’s loan growth and asset quality have remained resilient but rising macro headwinds and rapid rate hikes will dampen growth and increase asset quality pressures. That said, BPI’s corporate-focused loan book is a key credit strength that mitigates the downside risk and strong loss absorption buffers have also been built-up.
The bank has set an ROE target of 15% by 2026, which it intends to reach by (1) expanding loans at 15% CAGR over the period (2) shifting the loan mix towards higher yielding retail and SME loan segments (from a current combined share of ~25% to 30% by 2025) and (3) growing digital channels to boost fee and overall income streams.
Key MetricsAS OF 16 May 2023
|Reported ROA (Cumulative)||1.88%||1.59%||1.10%||0.98%|
|Reported ROE (Cumulative)||15.4%||13.1%||8.4%||7.7%|
|Net Interest Margin||3.94%||3.59%||3.30%||3.49%|
|Total Equity/Total Assets||12.4%||12.2%||12.1%||12.5%|
CreditSights ViewAS OF 18 May 2023
Fundamentally, BPI is sound with comfortable capital (CET1 ratio of 15.7%) and liquidity levels (70% CASA ratio, 77% LDR). The bank’s traditionally more measured and conservative approach has led to a loss of market share in loans and deposits in the past, as well as a lower net interest margin than BDO and Metrobank. However, the bank has taken a well-balanced approach towards business growth during and emerging from the pandemic and has improved its NIM and profitability. It is continuing to invest in digital initiatives which have driven growth and efficiency. The rapid rate hikes could temper growth momentum, but we see BPI’s asset quality remaining particularly resilient relative to peers as a result of its large corporate-focused loan book. We maintain BPI on Market perform.
Recommendation Reviewed: May 18, 2023
Recommendation Changed: August 19, 2022