Bank of the Philippine Islands (BPI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is the Annual Stockholders of the Bank of the Philippine Islands. We begin with the Philippine National Anthem. [Presentation]

Ladies and gentlemen, please welcome our Chairman, Mr. Jaime Augusto Zobel de Ayala.

Good morning. The Annual Stockholders' Meeting of BPI will now come to order. We're holding this meeting in a virtual format, the first time ever in our history, given the current health crisis. Let me welcome all of you, our fellow stockholders, who have joined us in the live webcast of these proceedings, and thank our shareholders who are participating in this meeting through our voting in absentia system or their appointment of the Chair as proxy. Thank you. Joining me in this meeting as presenters are Cezar Bong Consing, our President and CEO; Angela Maramag, our Corporate Secretary; Romeo Bernardo, the Chair of the Nomination Committee of our Board; Xavier Loinaz, an independent director and the Chair of the Audit Committee of our Board; and Maria Consuelo Lukban, Head of Corporate Strategy and Investor Relations. The other members of our Board and other officers are joining the meeting through the live webcast. Madam Secretary, have the stockholders of the bank been duly notified of this meeting?

Mr. Chairman, we sent to our stockholders of record as of March 6, 2020, the notice of the Annual Stockholders' Meeting and the definitive information statement in 3 ways: first, by e-mail to all stockholders who have provided us with their e-mail addresses; second, by posting on our bank's website; and third, by disclosure in the Philippine Stock Exchange. In addition, Mr. Chairman, the notice was published on April 2, 2020, in the Philippine Daily Inquirer.

Thank you very much. Do we have a quorum at this meeting?

Mr. Chairman, there are present in this meeting stockholder owning at least 3,609,441,389 shares, representing 79.98% of the 4,513,100,738 total outstanding shares. Therefore, we have a quorum and this meeting may proceed. Mr. Chairman, we will reflect in the minutes the breakdown of the stockholders present in terms of their mode of attendance and the percentage of outstanding shares that they own as well as the number of those joining us in the live webcast of the meeting.

Thank you very much, Ms. Secretary. Though we're holding this meeting in a virtual format because of government regulations that prevent us from in-person meetings, we have strived to provide our shareholders the opportunity to participate in this meeting to the same extent possible as an in-person meeting. Our Corporate Secretary, Ms. Maramag, will now share the rules of conduct and voting procedures for this meeting.

Mr. Chairman, the rules of conduct and voting procedures are set forth in the definitive information statement and in the explanation of agenda items, which is part of the notice of the Annual Stockholders' Meeting. Please allow me, Mr. Chairman, to highlight the following points to our stockholders who are joining us on our live webcast. First, stockholders who registered under the voting in absentia and shareholding system or who notified the company by e-mail of their intention to participate in this meeting by remote communication may send their questions at [email protected]. Second, Ms. Maria Consuelo Lukban, our Head of Corporate Strategy and Investor Relations, will read the questions or comments received before 9:30 a.m. during the Q&A period, which will take place under other matters under Item 8 of the agenda. Management will reply to questions not taken up during the meeting by e-mail. Third, stockholders could cast their votes on the proposed resolutions and in the election of directors through our voting in absentia and shareholding system. The polls will remain open until the end of this meeting for stockholders who successfully registered in the system. Fourth, we have tabulated the votes cast as of April 14, 2020, after the end of the proxy validation process. These votes are from stockholders owning 3,609,441,389 voting shares, representing 79.98% of the total outstanding shares. I will be referring to the results of this preliminary tabulation when I report the voting results throughout this meeting. The results of the final tabulation of votes will be reflected in the minutes of this meeting. Thank you, Mr. Chairman.

Thank you. The next order of business is the approval of the minutes of the Annual Stockholders' Meeting held on April 25, 2019. An electronic copy is available on the website of the bank. I'll now ask our secretary to present the proposed resolution on this item and the results of voting on this item.

Mr. Chairman, management is proposing the approval of the minutes of the annual meeting on April 25, 2019. The resolution is shown on the screen. Based on our preliminary voting tabulation, shareholders owning 3,609,441,389 shares or 100% of the total shares represented in this meeting, voted in favor of the resolution. Therefore, the resolution has been approved.

Thank you, Madam Secretary. We now move on to the next item on the agenda, which is the annual report, consisting of the message from the Chairman and the message from the Chief Executive Officer and President and some audio visual presentations. We will now be showing my prerecorded message, followed by an audiovisual presentation and then the prerecorded message from the President and CEO, Mr. Cezar Consing, which will be capped off with another audiovisual presentation. If we can now proceed. Good morning, fellow shareholders. Welcome to BPI's Annual Stockholders' Meeting. Joining us today are some of our most important business partners, clients and employees. To all of you, welcome. This morning, we will follow our usual practice and discuss the bank in 2 parts. I'll begin by touching on the broader markets and the bank's financial and operating performance. Our President and CEO, Bong Consing, will then discuss the bank's strategic initiatives moving forward. The Philippine economy expanded 5.9% in 2019, the first time it registered a growth of below 6% in the last 7 consecutive years. The slower economic growth largely stemmed from the late passing of the 2019 national budget. This led to a delay in government spending and consequently in private sector investments. For the first time in 7 years, the country registered a year-on-year decline in investment spending. The reduction in capital goods imports reduced the current account deficit, which, in turn, resulted in a stronger peso. A smaller deficit and a stronger peso would normally be seen as a positive indicator. However, the opposite is true when robust spending is imperative to sustain our economy's growth trajectory. Lower inflation over the course of the year allowed the Bangko Sentral to reduce bank reserve requirements from 18% to 14% and the key policy rate from 4.75% to 4%. While the increased liquidity sent a positive signal, expansionary monetary policy alone was unable to offset the investment slowdown. Despite a lower-than-expected economic growth, the Philippines remains one of the fastest-growing countries in the region. However, we believe that GDP has to grow at a faster pace if we are to become a middle-income country within this decade. The Philippine banking industry's performance reflected the macroeconomic story. Slower GDP growth translated into slower loan growth, 9.4% in 2019 from 13.7% in 2018 and 16.5% in 2017. Lower interest rates allowed banks with strong deposit franchises to expand their net interest margins and banks with large securities positions to record good trading gains. As a result, industry profitability was better in 2019 than the year before. BPI's financial results also reflected industry trends. BPI's asset base grew 5.7% to PHP 2.2 trillion. Its loan portfolio hit PHP 1.5 trillion, an increase of 8.9% from the previous year. Deposits increased by 6.9% to PHP 1.7 trillion. BPI registered PHP 28.8 billion in net income in 2019, a 25% increase over 2018. This translated into a return on equity of 11% versus 10.2% in 2018 and a return on assets of 1.4% versus 1.2% in 2018. Net interest income grew 18% as a result of a PHP 165.7 billion increase in average asset base and a 24 basis point improvement in net interest margin, the most significant expansion in over 10 years. Noninterest income, in turn, grew by 25% as a result of a 12% increase in fees, commissions and other income with almost all businesses up and a PHP 3.3 billion increase in trading gains. The decision to add on to trading positions and then take profits was deliberate and very well timed. Asset quality remained strong with a nonperforming loan ratio of 1.66%, a 19 basis point improvement from 2018, with additional provisions of almost PHP 6 billion booked and NPL loss reserves totaling PHP 25.4 billion. NPL coverage ratio and BSP coverage ratio, we reached 102% and 121%, respectively. BPI has always been a high-quality bank, and considerable effort has been made in the past few years to reinforce this view. The bank continues to get high marks from the regulators for its strong capital position, good asset quality, prudent management, good earnings, ample liquidity and relatively low sensitivity to market risk. Let me end by saying that we're very pleased with our results in 2019 given the operating environment. However, the coronavirus outbreak has become the greatest challenge for the global and domestic economies. We are hopeful that for 2020, the expansionary monetary policy, coupled with a more conducive investment climate, will more than offset the expected slowdown in our country. I will now turn over to you, Bong Consing, who will discuss the bank's various strategic initiatives. Thank you for being with us here today.

Thank you, Jaime. To our shareholders, business partners and clients, welcome to our annual gathering. Perhaps as important as the headline numbers or ratings is how we are changing from within. We are focused on being a more financially inclusive bank. This is evident in the setting up of our microfinance and SME lending businesses. Only 3 years since its inception, BPI BanKo is now the second largest microfinance bank in the country with a loan portfolio of PHP 4.3 billion, a growth of 100% in 1 year; a market share of 15% among microfinance and rural banks; a network of 300 branches; over 100,000 clients and total loan releases of PHP 11 billion. Asiamoney rated BPI Best Bank for Microfinance because of BanKo's growth. More than the results and the accolades, we are very proud of how BanKo has changed the lives of its clients. On the SME front, the 2-year-old business bank is attempting to replicate the early success of BanKo. While the SME loan portfolio grew only 6% last year, the lower end of the portfolio, that for loans below PHP 15 million, showed a 4.3x increase in approved loan applications, reflecting our tailored-fit solutions and dedicated coverage of this segment. BPI has been rated by Asiamoney as the best Philippine bank for CSR because of the work done by BPI Foundation, which has been consistent in its focus on education, entrepreneurship, environment and employee engagement, all critical elements of sustainability. BPI Foundation's budget has grown fourfold in the last 6 years, and beneficiaries have grown in number, from 1,700 6 years ago to 270,000 last year. BPI makes a meaningful contribution to 14 of the 17 United Nations Sustainable Development Goals, or SDGs. We started our green finance journey in 2008. And since then, we have embedded sustainability in how we conduct our business. This is most evident in how we have allocated our loanable funds. Outstanding loans that have an impact on these UN SDGs have increased from PHP 147 billion in 2015 to PHP 390 billion in 2019 or a CAGR of 28%. The share of these loans to our total portfolio has also increased from 17% to 26% in the last 5 years. In 2019, BPI's commitment was most significant in 4 SDGs: industry and infrastructure for 40%, 0 hunger for 26%, affordable and clean energy for 17% and sustainable cities for 9%. These SDGs account for 92% of BPI's consolidated SDG-related loan portfolio. In the last 7 years, from 2012 to 2019, BPI's power generation loan portfolio grew by a CAGR of 37%, with renewables showing the highest CAGR of 44%. In terms of power generation mix, the bank's lending to renewables accounted for 38% of the portfolio. This compared to the country's 21%. Digitalization is gaining considerable traction with gains that are tangible and visible. Online transactions, which in 2019 were up by 50%, account for practically all of the growth in the bank's transaction count. About 40% of the bank's customers are now enrolled in one or more of our digital channels with 25% of all customers regular digital transactors. Digital service fees now amount to PHP 1 billion per annum with over PHP 220 million in API revenues added in 2019 alone. The rate at which we are digitalizing will create about 20% additional capacity in our over 850 BPI and Family Bank branches by the end of 2020. Data science is already adding value to our retail businesses. Coupled with thoughtful changes in policies and processes and more disciplined execution, we are already seeing the value of having recruited and trained 25 data scientists in our various consumer businesses. Overall, our SME and consumer loan book grew by 12.5%, outpacing the 7.9% growth of our corporate loan book. This produced a 76 basis point shift in the corporate to SME/consumer loan mix, which contributed to the increase in the bank's overall net interest margin. Capital markets has become an important competitive advantage. BPI's ability to tap the equity and debt capital markets for its own account is becoming increasingly important as we seek to increase the efficiency of our balance sheet, reduce our funding costs, diversify funding sources and take advantage of lending and investing opportunities. We followed up on our 1 equity and 2 debt capital raisings in 2018 with 5 debt capital markets transactions in 2019, each one noteworthy. We raised $300 million of 5-year money via a green bond; CHF 100 million of 2-year money via a green bond that fetched a negative interest rate, a first in the region; PHP 3.1 billion in 5.5-year long-term negotiable certificates of deposits; PHP 9.5 billion in 2.5-year bonds for our savings bank; and at the turn of the year, PHP 15.3 billion in 2-year bonds. The COVID-19 pandemic is making 2020 quite challenging. Operational resilience has been of paramount importance as we seek to ensure the safety of our employees and the continuous delivery of banking services to our clients. We've maintained a skeletal workforce in our head office units across different sites in Metro Manila. We've kept, on average, about 1/3 of our branches open and ensured continuous availability of our online and mobile channels. We have temporarily waived transaction fees. We continue to have an active lending business. Even prior to the passing of the Bayanihan act, we provided a 30-day grace period to customers in general and a 90-day grace period for our frontliners. Through BPI Foundation, donations were made to the Philippine Red Cross for the provision of face masks and personnel protective equipment to COVID-19 frontliners. The COVID-19 crisis will undoubtedly produce considerable stress on all Philippine businesses and the SME and consumer segments, in particular. However, we remain committed to all our client segments. The year will require continued emphasis on managing risks as we expand our SME and consumer businesses for the long term, which provide higher lending margins and service fees, an invigorated focus on cost of deposit growth, a moderating of expense growth, continued reallocation of resources in favor of technology and digital and the consumer space and a determination to continue to upgrade customer service. The success of all of these efforts will contribute to a more sustainable business and, under favorable market conditions, recovery and growth of our share price. The financial and operating results of 2019 are heartening in that they tell us that the many initiatives that we have undertaken in the past few years are beginning to bear fruit. While there is much more to be done, we would like to take a moment to thank our Board of Directors for their wise counsel, our management and staff for their professionalism and dedication, and you, our shareholders, for your continued support. We go to work every day knowing that we owe you our very best efforts. Thank you, and good morning. [Presentation]

Thank you very much. Thank you, Bong, also for your presentation. If I could now ask the secretary to present the proposed resolution of this item and the voting results.

Mr. Chairman, management is proposing the adoption of the resolution for the noting of the bank's annual report and the approval of the audited financial statements of the bank as of December 31, 2019, as audited by its external auditor, Isla Lipana & Co., which is shown on the screen. Stockholders owning 3,600,038,189 shares or 79.77% of the total outstanding shares and 99.74% of the shares represented in this meeting have voted for the adoption of the resolution. With this, Mr. Chairman, the resolution has been approved.

Thank you, Madam Secretary. We now move on to the next item in the agenda, which is the ratification and approval of all the acts of the Board of Directors and officers since our Annual Stockholders' Meeting last April 25, 2019, until today. The Corporate Secretary will explain this matter and present the proposed resolution together with the voting results thereon.

Mr. Chairman, the Board and management seek ratification of all the acts and resolutions of the Board, Executive Committee and other Board committees, which were adopted from April 25, 2019, until today. These acts and resolutions include the election of officers and members of the Board committees; amendments to the bylaws; contracts and transactions entered into by the bank; credit and loan transactions, including to related parties; projects and investments; treasury matters; manpower-related decisions; corporate governance-related actions; and matters governed by disclosures to the Securities and Exchange Commission and the Philippine Stock Exchange. Stockholders' ratification is also being sought for the acts of the bank's officers to implement the resolutions of the Board or its committees or made in the conduct of business. Shown on the screen is the resolution, the adoption of which is being proposed by management. Stockholders owning 3,602,569,432 shares or 79.82% of the total outstanding shares and 99.81% of the shares represented in this meeting have voted for the adoption of the resolution. The resolution has thus been approved.

Thank you very much. The next order of business is the election of the 15 members of the Board of Directors for the ensuing year. Mr. Romeo Bernardo, Chairperson of the Nomination Committee, will explain this item.

Yes. Mr. Chairman, in accordance with the bylaws and manual of Corporate Governance as well as the rules of the Securities and Exchange Commission, the following shareholders were duly nominated to the Board of Directors of the bank for the ensuing term: Jaime Augusto Zobel de Ayala; Fernando Zobel de Ayala; Cezar P. Consing; Romeo L. Bernardo; Ignacio R. Bunye; Ramon R. del Rosario Jr.; Octavio V. Espiritu; Rebecca G. Fernando; Jose Teodoro K. Limcaoco; Xavier P. Loinaz; Aurelio P. (sic) [ R. ] Montinola III; Mercedita S. Nolledo; Antonio Jose U. Periquet; Eli M. Remolona, Jr.; Maria Dolores B. Yuvienco. Messrs. Bunye, del Rosario, Espiritu, Loinaz, Periquet and Remolona and Ms. Yuvienco have been nominated as independent directors. The Nomination Committee of the bank has ascertained that the 15 nominees, including the 7 nominees for independent directors, are qualified to serve as directors of the bank. All the nominees have given their consent to their respective nominations. Thank you.

Thank you very much. Thank you very much, Mr. Bernardo. Madam Secretary, may we have the results of the election?

Mr. Chairman, based on our partial tabulation of votes, each of the 15 nominees for directors has garnered at least 3,359,111,526 votes, which represents 74.43% of the total outstanding shares and 93.06% of the shares represented in this meeting. Given this, I can certify, Mr. Chairman, that each of the nominees has received enough votes for election to the Board and that the resolution to this effect has been approved. We are now showing the resolution on the screen.

Thank you very much. Before we proceed, let me also just take this opportunity to thank Mr. Gerry Ablaza for his support and service on the Board since 2017, including his guidance to the Personnel and Compensation Committee and the IT Steering Committee. It's been a pleasure to have Mr. Ablaza with us. We are also grateful that he will continue, aside from stepping down from the main BPI Board, he will remain on the BPI Family Board given his strong consumer background and experience. We thank you, Gerry, for the term that you spent with us. I'd also like to thank and welcome Mr. Ramon del Rosario for his willingness to serve as Director of BPI. As a former Secretary of Finance and a gentleman who has provided leadership in business and education for many years now, we're thrilled to welcome Mr. del Rosario to the Board. Welcome as well, Ramon. And let me just use this occasion as well to thank the members of our Advisory Council, who continue serving as advisory members on a regular basis: Chief Justice Artemio Panganiban; Mr. Oscar Reyes, Mr. Del Lazaro, who provide invaluable advice both to myself, to Mr. Consing and other members of the management team on a very regular basis as advisory members. We thank you also for your regular engagement with the bank. The next item on the agenda is the election of the bank's external auditor. If I could request Mr. Xavier Loinaz, Chairman of the Audit Committee, to please explain this item to stockholders.

Mr. Chairman, the Audit Committee evaluated the performance of our present auditor, the firm of Isla Lipana & Co., during the past year, and we found their performance satisfactory. The Audit Committee and the Board of Directors have agreed to endorse, for stockholders' approval, the reelection of Isla Lipana & Co. as our external auditor for the present fiscal year for an audit fee of PHP 18.340 million. Mr. Chairman. This is our proposal.

Thank you, Mr. Loinaz. If I could ask our secretary to present the proposed resolution on this item and the voting results.

Mr. Chairman, management is proposing the adoption of a resolution for the election of the bank's external auditor and fixing of its remuneration. The resolution is shown on the screen. I am pleased to report, Mr. Chairman, that shareholders owning 3,605,425,077 shares or 99.89% of the total shares represented in this meeting voted in favor of the resolution. Therefore, the resolution has been approved.

Thank you, Madam Secretary. Madam Secretary, are there other matters that require consideration by the stockholders?

There's none, Mr. Chairman.

We will now address additional questions and comments from the stockholders. Our Corporate Strategy and Investor Relations Head, Ms. Lukban, will read aloud the questions and comments, together with the names of the stockholders who sent them. As mentioned by the Corporate Secretary earlier, management will reply by e-mail to questions and comments not taken up during meeting. Thank you. If we can open up the floor to Ms. Lukban. I think we need to take you off mute.

Okay. The first question, Mr. Chairman, is from shareholder, Mr. [ Julius Sanvictores ]. The question is, "How is COVID-19 affecting Philippine banks, corporate finance and our money? Will there be credit tightening or banks being more reluctant to extend credits to retail customers and small and medium enterprises? And are banks also reducing credit lines for large corporations?"

Thank you very much. If we could maybe open up the question to our President and CEO, Mr. Consing.

Thank you, Chairman. In the near term, COVID-19 has obviously presented operational challenges to the banking industry. But because the industry has been considered critical, it's been allowed to maintain skeletal workforce in the head office units and to keep some branches open. So in general, 20% to 25% of the industry's employees are actually at work either in the head office or in the branches. That is the near-term effect of COVID-19. Over the medium term, perhaps more importantly, the industry expects credit losses to go up. And that is because businesses and retail customers will all be impacted in several ways and in various forms by this crisis. And so the industry obviously has to prepare for increasing credit losses. Fortunately, the industry is in very strong shape. Capital ratios are very high. So it can withstand this pandemic. There will obviously be a little bit of reticence as more care is taken with credit risk getting higher, but the monetary authorities have responded by increasing liquidity, increased regulatory forbearance. And you'll see that just last week, the Central Bank Governor introduced provisions that would encourage SME lending. So hopefully, that will help balance things out.

Thank you. Thank you, Bong. Other questions, Ms. Lukban?

Yes. We have two more, Mr. Chairman. The first is from a shareholder, Mr. Ishmael Sam Canua. He has 2 questions. The first is, "We are awaiting for the decision of the Philippine President if the enhanced community quarantine will be extended or modified. What will be the additional effects for the bank?" And his second question is could we provide an update on the construction of the new BPI head office.

Yes. Thank you very much. Bong, if I could turn the question again to you, please.

Thank you, Mr. Chairman. Well, the BPI is preparing for a potential extension of the enhanced community quarantine in its present form or in a modified form. We are preparing for either one. We think we can run this place indefinitely under these circumstances. So I think we're in good shape there. On your second question, Mr. Canua, the building is currently in the process of gradually being torn down. The building construction will continue. It is a long-term project, and we are committed to the completion of our new headquarters. Thank you very much.

Thank you, Bong. Other questions, Ms. Lukban?

Yes. We have one last question, sir, from Maria Ramona Ang. "We are on an enhanced community quarantine. I want to access my account, but I can't go to my branch. How can I check my account?"

Thank you for the question, Ms. Ang. You can check by enrolling in our digital banking. We actually can do this on mobile or we can do this via the Internet. You can register your account online. We have videos on Facebook and YouTube to show you how to do it. In this ECQ period, you -- we've temporarily waived fees for money transfers and fund transfers. We want to make this as convenient for you at this time. I should also mention that over 50% now of all our customers access us digitally. And just last week, 92% of all our transactions were executed digitally. We now have more than 50% of all our volumes happening digitally. So this is a trend that will continue. We encourage you, Ms. Ang, to register online.

Thank you very much, Bong. Ms. Lukban, any other questions?

There are none at this time, sir.

Thank you very much. If there are no other comments or questions from the stockholders, the meeting is hereby adjourned. Thank you kindly again to everyone for joining us. I hope you've found this informative. And I -- as we mentioned in the past, if there are other questions, of course, we will answer them by e-mail in any way we can. I wish everyone continued good health as we forge ahead in this turbulent time. I wish you and your families all the very best, and thank you again for coming and joining us here today. Thank you.