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Fundamental View
AS OF 04 Mar 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 04 Mar 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 2022, it announced the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 77% of its loan book outstanding to corporates, 1% to SMEs and 22% to retail as of YE23. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 04 Mar 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
BPI’s asset quality has remained fairly resilient from risks posed by high interest rates. The recent focus on unsecured retail growth in order to gain market share and support the NIM when the interest rate cycle turns has put pressure on asset quality, but within acceptable levels thus far. Loss absorption buffers as well as provisioning capacity are strong, and the predominantly large corporate-focused loan book (~77% of total loans) is a key credit strength.
Loan growth appears to be gaining momentum after a sluggish 9M23, particularly in the corporate capex space. The acquisition of Robinsons Bank opens BPI up to new customer segments such as teachers and motorcycle loans, although the current footprint is small.
The rate cutting cycle is likely to commence in 2H24 which will have a net negative impact on the NIM, but the effect is likely to come through only in 2025.
Key Metrics
AS OF 18 Mar 2024PHP mn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
PPP ROA | 2.05% | 2.42% | 2.01% | 2.41% | 2.52% |
Reported ROA (Cumulative) | 1.38% | 0.98% | 1.10% | 1.59% | 1.93% |
Reported ROE (Cumulative) | 11.0% | 7.7% | 8.4% | 13.1% | 15.4% |
Net Interest Margin | 3.30% | 3.49% | 3.30% | 3.59% | 4.09% |
CET1 Ratio | 15.2% | 16.2% | 15.8% | 15.1% | 15.3% |
Total Equity/Total Assets | 12.2% | 12.5% | 12.1% | 12.2% | 12.4% |
NPL Ratio | 1.66% | 2.68% | 2.49% | 1.76% | 1.84% |
Provisions/Loans | 0.39% | 1.94% | 0.91% | 0.58% | 0.22% |
Liquidity Coverage Ratio | 167% | 232% | 221% | 195% | 207% |
Net Stable Funding Ratio | 131% | 154% | 155% | 149% | 154% |
CreditSights View
AS OF 19 Mar 2024BPI is a fundamentally sound bank. Its traditionally more conservative approach has led to a loss of market share in loans and deposits in the past, as well as a lower NIM than BDO and MBT. However, it has taken a well-balanced approach towards growth during and post-pandemic, and improved its NIM and profitability well partly by shifting the loan mix towards retail. It is continuing with digital investments which have driven growth and efficiency. High interest rates and brisk growth in unsecured retail present asset quality risks, but levels are currently well-controlled. Loan growth was sluggish but has started to show signs of improved momentum. We like BPI’s large corporate-focused book, comfortable capital and loss absorption buffers, and provisioning capacity.
Recommendation Reviewed: March 19, 2024
Recommendation Changed: August 19, 2022