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

Good afternoon, ladies and gentlemen. Welcome to BPI's Fourth Quarter and Full Year 2022 Earnings Call. This is Chinky Lukban, Head of BPI's Corporate Strategy team, your moderator for this afternoon's session. I am pleased to introduce you to our speakers and panelists this afternoon. First off, TG Limcaoco, our President and CEO; Eric Luchangco, our CFO and Chief Sustainability Officer; Juan C. Syquia, Head of our Institutional Banking; Tere Marcial, Head of our Wealth Management; Jojo Ocampo, Head of Mass Retail Products; and Ginbee Go, Head of Consumer Banking. We also acknowledge the presence of the rest of the BPI leadership team joining us on this call. This afternoon's agenda will begin with opening remarks from our President, TG Limcaoco followed by our CFO, Eric Luchangco, who will walk you through this quarter's macroeconomic updates, performance highlights, digital and sustainability updates. The floor will then be open to questions from the audience. Just some housekeeping reminders before we proceed, first, identify yourself by your name and company so we can address you accordingly, keep your lines on mute to minimize background noise. And finally, this call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks. TG, go ahead, please.

Thank you very much, Chinky, and a warm welcome, and good afternoon to everyone joining us on today's call. I think today, we're going to tackle some very interesting topics. First of all, as you all know, we reported record earnings for the bank last Friday. And I've asked Eric to talk about in great detail what drove those earnings. So as usual, we will talk about full year earnings but also spend some time on going and looking at the momentum that we've built up in Q4 and how that will translate into this current year. Secondly, we'll also spend some time talking about our efforts in the digital space as we always do. And we will also talk about the progress we are making in what we call our agency banking efforts as well as in our sustainability agenda. So with that, we'll turn it over to Eric now. We've got the whole management team here to answer any questions that you might have at the end of Eric's presentation. Thanks very much, and Eric?

Good afternoon, and thank you, TG. And so yes, let me just start off by going through -- before we do the financial performance, just a brief recap of the operating environment that we had through the course of 2022. 2022 was characterized both globally and domestically by high inflation, leading to aggressive policy rate increases, which dampened economic growth. In the Philippines, full year GDP growth came in at 7.6%, just slightly lower than our expectations earlier on in the year, but well ahead of global growth, which IMF projected at 3.4%. BSP increased policy rates in 2022 by 350 basis points, mostly in the second half, especially as the peso depreciated bringing our policy rate up to 5.5% by year-end. Interest rates increased across the yield curve with higher increases seen in the shorter tenures. But despite rising inflation and interest rates, we saw strong consumer demand through the year, which in turn helped drive corporate growth. As a result, the [ banking industry ] benefited from a growing level and higher NIMs. Notwithstanding the higher [indiscernible] remain contained. Moving on now to the performance of BPI, we're pleased to report that the bank generated a record net income of PHP 39.6 billion, up 66% from last year, driven by above industry loan growth and improving NIM and lower provisioning versus last year. ROE stood at 13.14%. Loans grew by 14.9% and deposits by 7.2%, while CET1 remained above 15% despite the aggressive growth in risk-weighted assets and higher [indiscernible]. Asset quality remains strong with the NPL ratio [indiscernible] to 1.76% and NPL cover growing to 180%. And as usual remains better than the overall industry. The bank also followed through on its goal of broadening its customer base growing total customer count to 9.3% -- 9.3 million, of which 2.8 million are considered digital customers. We continue to launch our digital platforms with our SME - targeted BizKo launched early in the second quarter and our own digital wallet, VYBE launched in the fourth quarter. We also announced our merger plans with Robinsons Bank for which we secured shareholder approval in January. Looking at our performance for the full year. We delivered, as I mentioned, a record net income of PHP 39.6 billion, up from last year's PHP 23.9 billion. Excluding the onetime gain on the sale of a property in the second quarter, the bank net income would have still been PHP 35.9 billion, which would have been up about 50% year-on-year. Looking at the breakdown, net interest income ended at PHP 85.1 billion (sic) [ PHP 85.7 billion ], which is up 22.2% year-on-year, attributed to strong loan growth and higher NIMs. Noninterest income was at PHP 33.46 billion, up 20.3%, largely driven by the asset sale in the second quarter. That led to total revenues of PHP 118.52 billion, up 21.7%. While operating expenses are up 14%, driven mainly by the growth in technology and volume-related costs. Provisions were at PHP 9.17 billion, which is 30.2% lower than last year, which brought net income to PHP 39.6 billion, again, up 66%. This led to ROE of 13.14%, which is our highest since 2017 and an ROA of 1.59%, which is the highest since 2013. Looking at our sequential quarter performance. For the fourth quarter, the bank generated an income of PHP 9.06 billion. And although this is down 10% compared to the third quarter, it's largely due to the 26% increase in operating expenses quarter-on-quarter as we book milestone payments for tech spend as well as make sure that our current year expenses were fully booked within the year. Compared to the fourth quarter of last year, income was up 41%, largely on strong net interest income, which was up 27%, which more than offset the increase in the operating expenses as well as the reduced provisioning, which was lower by more than PHP 1 billion. For 2022, the bank generated a record revenue of about PHP 118.5 billion up 21.7% compared to the previous year. And the increase was mainly -- was driven by net interest income, which was up 22%, and the fee income, which was up 24%, which offset the decline in the trading income. The fee income was supported again by the one-off gain from the asset sale and by the strong growth in our customer base in our -- and the growth in volumes from our card business. The positive trend in net interest income remains intact for the eighth sequential quarter backed by accelerating loan growth and increasing NIM. Looking at the loan book. Total loans stood at PHP 1.76 trillion by year-end, up 14.9%, backed by consistent monthly growth in the loan book with the growth trending ahead of peers. Growth was broad-based and was led by credit cards, up 31% as the customer base expanded 16%, partly due to an aggressive campaign to add cardholders. Monthly billings increased 40% year-on-year and the monthly revolving balances also increased by 48% year-on-year. On an absolute basis, the corporate and SME loan portfolio grew by the most, up PHP 188 billion or 15.5% for the year. December marked the highest monthly increase for the year at PHP 65 billion. Personal loans had the fastest pace of growth at 67% and micro finance also contributed with a 21% growth. These segments, however, account for only a small percentage of the loan book. Mortgages posted a modest growth of 2.6% due to the decline on the institutional side where we finance developer financing for new real estate projects with -- partially offset the increase in the regular housing segment. Looking at the net interest margin through the course of 2022. BSP increased the policy rate by a total of 350 basis points, most of it coming in the second semester. And as a result, full year NIM improved to 3.59% from 3.30% last year, up 29 basis points. That's a greater portion of the asset book reprices than the funding book. Quarterly NIM also improved significantly to 3.75% in the fourth quarter compared to 3.30% in the previous year, up 45 basis points. Asset yields increased on higher repricing rates and additional investments in securities at amortized costs. Meanwhile, the cost of funds also started to increase in July following the increase in monetary policy rates and also because TD grew at a faster rate than CASA. We also wanted to provide you with monthly NIM, so you can see how NIMs have been moving through the course of the year instead of just the quarterly average. As you see on the left graph, monthly NIM increased 51 basis points to 3.87% in December from 3.36% in the previous year. The continued uplift in NIM should be supported by the lag effect of the increases in policy rates in the second half of 2022 as well as any further rate increases early this year, even though they will be at a moderated pace. The overall mix in the repricing portfolio of our loan book has not changed substantially despite the rising interest rate environment, with just under 1/3 of our book repricing within a month, just over half repricing within 3 months and just over 70% repricing within a year. Our mainly floating loan portfolio is predominantly funded by low cost and fixed priced CASA, so it is positioned well to continue to benefit from rising interest rates. Meanwhile, securities at amortized cost increased by 68% with an improved portfolio yield, which was up 42 basis points. Fee income increased by 24.5%, driven by, again, the sale of the Pasong Tamo property, also by cards due to higher billings, cross-border transactions and membership fees and as well by transaction banking activity, mainly on higher trade transactions. These offset the declines in branch service charges due to the discontinuation of a deposit product, insurance on lower branch commissions and lower income from equity investments and retail loan fees due to lower late payment charges from lower delinquencies. Excluding the one-off sale of property and our fee income would have still increased but by just 3.6%. Operating expenses increased by 14%, faster than historical, but lower than our initial pricing -- lower than our initial guidance at the beginning of the year. All expense lines increased led by technology and other expenses and other expenses were led by regulatory and marketing expenses. The tech spend was up by 27.8%, reaching PHP 11.4 billion on continued investments in digitalization projects, but we're still well short of the planned spend of PHP 13 billion. Manpower expense was up 5.4% due to the annual pay hike and structural salary adjustments for qualified officers but was offset by a managed headcount. Meanwhile, other expenses increased 21.6% driven primarily by the increase in market -- increase in marketing expenses of about PHP 2 billion on major marketing campaigns, including an aggressive campaign to acquire the Citi customers that we didn't win via bidding. Despite the higher spend, the cost-to-income ratio declined to 48.9% this year versus 52.1% last year. And even excluding the one-off asset sales, cost-to-income ratio would have still been down to 51%. Increased digitalization along with our customer delight programs allowed us to serve more clients, process more transactions and significantly improve our NPS score with a lower branch footprint and manpower. To date, we have reduced our branch count to 752 BPI branches with more branches lined up for co-location or consolidation this year. Meanwhile, we continue to grow out our BanKo branch count in support of financial inclusion, given the importance of physical presence in this segment. Our balance sheet expanded by 3% quarter-on-quarter and 7.5% year-on-year to reach PHP 2.6 trillion. Deposits increased by 3% quarter-on-quarter and 7.2% year-on-year with growth led by retail clients. Time deposits increased 19.8% year-on-year compared to the 3.5% increase in CASA as depositors shifted to time deposits given the increasing opportunity cost of staying in CASA. The CASA ratio has fallen to 74.4%, down 2.69 percentage points versus a year ago, but still by far the dominant source of funding. Liquidity remained strong with LCR at 194%. Asset quality gains have been sustained with sequential quarterly improvements in asset quality metrics. NPL ratio eased to 1.76% from 2.49% in 2021, which was just about -- which at 1.76% is just about 10 basis points above its pre-pandemic level. In addition, NPL cover is at 180%, well above the pre-pandemic level of 100%. The NPL ratio declined on both a lower NPL level and an expansion of the loan base. With the macroeconomic environment and asset quality improving through the course of 2022, we provisioned less for the year, bringing our credit cost to 58 basis points from 93 basis points last year. Another metric we paid more attention to since COVID is the restructured loans figure, and that has remained managed, currently standing at PHP 29 billion or 1.6% of total loans, well below the end -- industry average of 2.69%. Capitalization levels remain robust despite a reduction of 65 basis points with CET1 growing PHP 24 billion on an absolute basis to remain just above 15%, but it was outpaced by about 14% increase in risk-weighted assets and the 18% increase in cash dividend. Nevertheless, capitalization levels remain comfortable and CAR also remains at just above 16%. Before I move into the digital metrics, I just wanted to introduce BPI agency banking. This is the latest in our long line of technology-enabled innovations that will change the way BPI engages with customers. We are setting up a network of partners, department stores, supermarkets, convenience stores, gas stations and online partners to make BPI products and services more accessible. Each partner will be equipped with tech-enabled infrastructure, allowing them to act like a branch, changing the way that BPI can reach, acquire and serve customers. This distribution channel is being rolled out this year and just last week, we formally launched the BPI flagship store on Lazada, where clients can open a deposit account, apply for an auto or mortgage loan or a credit card. Soon, insurance and investment products will also be made available on Lazada. This channel, together with our e-wallet VYBE will bring us closer to our aspiration of banking 50 million Filipinos at BPI. We made significant progress on our digital strategy in the past 12 months, particularly on digital onboarding, digital engagement and digital partnerships that accelerated the growth of the BPI ecosystem, improved customer experience and generated new revenue streams for the bank. Since its launch, we've directly acquired about 150,000 new-to-bank customers, about 180,000 new-to-product accounts with a seamless, safe and fully digital onboarding process of our platforms. In addition, we have acquired about 500,000 new-to-bank clients through our collaboration with GCash and we target to onboard about 500,000 more through agency banking this year. In the past 12 months, we've added and improved functionalities on our digital engagement platforms. We've launched BizKo, which is our platform for SMEs, in March and our e-wallet VYBE, which was soft launched in October. We now have 6 platforms available, and we target to launch our seventh platform designed for high net worth clients and our app for BPI trade in the first half of this year. These platforms are enabled by our open banking infrastructure that allows customers access to over 2,200 products and services provided by over 100 partners. Now moving on to the digital metrics. In 2022, we added 835,000 new retail clients bringing our retail client base to 9.3 million, up 10% from the previous year. Digital customers stood at 2.8 million, up 937,000 from the beginning of the year and 5.4x the level in 2019, bringing our digital penetration rate to 30% of our total customers compared to only 6% in 2019. In terms of engagement, digital customers had about 3.3x more transactions than the nondigital customers. Here, we show the [ profitability ] of our digital customers and their differential over nondigital customers. Digital customers account for only 30% of the total retail clients, but they contributed 47.5% of the retail revenue, which, therefore, generated 59.2% of retail income before provisions. Digital customers generate about double the revenue per capita versus nondigital customers. [indiscernible] explains that 2022 sequential increases in digital customers from the mass market [ to balances ] by bringing down the aggregate for [ retail ] customers. They have a higher cost per capita of [indiscernible] times but they generally have more transactions than nondigital customers. [indiscernible] transactions for online, up from 75 million in 2021. And online our digital transactions cost less to an offline or branch transactions. We have a cost-to-income ratio for digital that is [ 27 ] than our nondigital customers. We can see this further on the graphs [ represented ] here that our digital to increase digital customers could add value to our shareholders. In just over [ 3 ] years, we are going to increase digital customers by 5.4x to 2.8 million as of the end of last -- of 2022. Finally, on sustainability. BPI further strengthened its leadership in environmental, social and government or ESG initiatives. To date, BanKo has assisted 274,000 Self-Employed Micro-Entrepreneurs or SEMEs with dispersed loan reaching PHP 37.6 billion. BPI Business Banking has helped over 132,000 [indiscernible] with total loan re-leases reaching almost PHP 400 billion. BPI's Sustainable Development Finance or SDF has funded 398 energy efficiency, renewable energy, green building or climate resilience and sustainable agricultural projects amounting to PHP 252 billion. And by the end of 2022, 51% of BPI's corporate loan portfolio will support the UNSDG goals. BPI once again posted a number of first, BPI is the first Philippine bank to have earned IFC World Bank Green Building Certification called EDGE for 5 BPI branches with more scheduled for 2023. BPI converted 2 more BanKo buildings to reach a total of 3 BPI buildings using 100% renewable energy. There were also sustainable banking initiatives aimed at the consumer and retail segment, including green time deposits called Green Saver which requires only PHP 5,000 investment and yields over 4%, for which proceeds would be allocated towards green loans. Pamilya Protect, which offers insurance coverage for the whole family via digital platforms. NegosyoKo Lite and JFC-BanKo financing program, expanded the financial assistance given to SEMEs and to farmers. In 2022, in recognition of all the programs that BPI has implemented, we currently have the record number of 10 ESG accolades, recognizing the various ways in which BPI has upped the bar for the industry. In summary, let me highlight the key takeaways. On profitability, the bank delivered a record net income supported by steady growth in revenue, volumes and customers. On the balance sheet, we maintained strong liquidity and capital position. On asset quality, we sustained gains in asset quality, which allowed a normalization of our credit costs. Our digital initiatives are driving consumer loyalty, customer loyalty, volume growth and operational efficiency, while we further strengthened our leadership in sustainability. We are proud of our record-breaking year for profit for the bank driven by strong performance across multiple segments. Though visibility over the horizon is limited. We are prepared for a range of scenarios in 2023 and remain confident in our ability to execute and deliver shareholder value. Thank you. And I now open the floor for questions.

Thank you, Eric. Ladies and gentlemen, the floor is now open for your questions. [Operator Instructions] Our first question comes from Aakash Rawat of UBS. Aakash?

I hope you can hear me all right.

We can hear you well. Go ahead.

My first question is just touching upon the loan growth momentum, which was very strong quarter-on-quarter. And I think the slide showed that Corporate and SME are probably key drivers of that. So I just wanted to understand which sectors it's coming from? And were there any one-off items in this, which might not continue.

Maybe we'll have Juan C. Syquia talk about the loan growth in the corporate book, Juan touch about -- as well as our business banking, please?

Yes, sure. So good afternoon, and thank you to everyone for attending. Yes, so on the corporate and the business macro SME loan portfolio. Yes, there was good organic growth. But to -- as to your question on one off-there were, I think the highlights of last year across different sectors would be -- [ public ] sort of the tower transactions, whereas telecom tower transactions for a sector where we were very busy at last year. Actually, both of the portfolios that PLDT sold were funded by BPI to clients that were actually the acquirers. We also did one of the other 3 that were portfolios that were sold by Globe. So yes, there were one-off ones. But I think the rest were organic in the sense that they were probably there to build inventory and reposition for increasing capacity. The caution that I would have, I'm monitoring the team is that there were 2 reasons probably that the 1 of -- one is to [indiscernible] or volume that was created because of pent-up demand or when the markets opened up, early part of the year. So that's one. Second, the increase in values that are -- that arise because of inflation. So those are not necessarily caused by underlying increases in units or volume of business, but rather just higher prices. So we are monitoring that. But not needless to say that being the case, the new normal in terms of cost to operate will be there. And that's true for the business bank part as well that TG mentioned, but we still see that with the opening up, there's going to be more momentum in the smaller businesses in the market. So we're looking for -- to support that part of the balance sheet growth of these clients for us.

I think the one-off, if I got correctly, the one-offs were earlier in the year. But in Q4, there was no one-offs which drove the Q-on-Q momentum, right?

None.

Okay and I think if you look at existing loans, then it does suggest that on the month-on-month level, there has been some slowdown. Are you starting to see any signs of slowdown in any part of the book?

Yes. So definitely, there are, [ not ]. I am also conscious that part of it may also be repositioning by clients are probably more aggressive, bids also by other banks. So some of these are very, very short-dated borrowings and be this probably move more because of pricing than because of organic relationship with this foundation. But I think for us, that's normal, and we can regain those [indiscernible] just because of pricing. But we are now seeing probably some caution also by clients in determining whether they too, in terms of business prospects, need to adjust their growth targets for the year.

Got it. So I guess, keeping this context for FY '23, what sort of guidance do you have for the loan growth for the full year?

Yes. I think right now, it's a wide range, Eric, I don't know if you're using for the whole bank, but maybe high single digit to low double digit would be a safe bet for the corporate and business bank area.

Yes. For the overall book, we're looking in the double-digit area, probably not to exceed the mid. So more on the low-to-mid range.

I could only add this, that as we expect B2B banking clients that are corporates, that are also capitalizing on gross prospects in the economy. We look to beat GDP growth. That's our target as far as the corporate and business [ map ] areas are concerned.

Okay. Eric, keeping the overall guidance in the context of the corporate and business banking book. Is it fair to say that you're expecting the consumer book to grow faster this year compared to the nonconsumer book?

That is the goal. That is the goal.

Okay. Great. The next question that I have is on the asset quality side. Again, with rates having gone up as much as they have, are you starting to worry about any particular sectors or something that you're watching closely? Or are you being more selective in any of the sectors than, let's say, 3, 4 months back.

We really have not seen any stress in the book and you know, Aakash, that we've always thought that our credit culture is fairly strong. The process we have is we constantly review our lending parameters. Again, we recall our worst case situation and take a look at what industries might be affected, so the worst case that we had maybe 6 months ago is certainly much worse than what we're seeing today. So we're not there. So if Juan, I don't know, Juan, if you want to weigh in, again, with some concrete examples of what we're seeing, but we're seeing very little pressure on credit quality in the book today.

Yes.To add to that, what TG said, definitely in terms of payments habits and experience were okay. But we are monitoring certain key sectors. So for instance, we know the construction sector is challenged. As you might expect, many of the contracts that were inked since prior to the pandemic are still pending there seems to be selective slowdown in some areas of the real estate sector. So there's a big chain reaction there from developers to the input providers and the ones in the middle are definitely the contractors. So we are like taking a look at sectors such as those, and selectively, within industries, they're those who were not able to adjust or pivot to what was the -- what is going to be the next normal. So we're looking at those subjects or pockets in those sectors. Otherwise, very confident that, that we'll be on top of them, if anything untoward happens.

Okay, understood. Just moving on to the net interest margin. So starting with tightening of liquidity, I mean this is something that is happening everywhere, that even in your book, we saw the cost of funds rise 47 basis points Q-on-Q and the CASA decline. Now the margin hit the expectation of rates likely to peak out soon, are you seeing this pressure easing off a little bit? Are you seeing it getting more intense? And keeping this in mind, how would you -- how are you thinking about the NIM for FY '23? When do you think it's likely to peak?

Juan you want to -- I'll take that, TG. Yes. So, Yes. We do expect that NIMs will continue to trend upwards, especially in the first half of this year because of the delayed effects -- lag effects from some of the repricing, so as policy rates were increased even into the fourth quarter, and we expect to see some in the first quarter. We should continue to see NIMs trending upwards. But we are seeing some easing in terms of liquidity in the market, which means that we expect that there should be an easing in terms of the ability to fund, and so that should also allow us to widen our NIMs. And we expect NIMs to remain at these levels, kind of at higher levels through the course of 2023 because we don't really see, -- if ever, the rates go down, which is probably going to be -- policy rates start to go down, it's probably going to be more in the fourth quarter and lag effects will mean that it probably isn't going to impact the 2023 NIM levels.

Got it. So Eric, would you be able to share any levels that you have -- you're thinking about? Like what sort of levels should the NIMs reach by the end of second quarter, when I think likely, we see the peak.

Yes. So we're not giving specific projections in terms of the NIM levels. But I think what I showed earlier, the December monthly NIMs were at 3.87%. We're seeing that continue to trend upwards as we move through the course of the year. And I think you should continue to see that trend. But again, we should start to see some level of moderation as the policy rate increases are expected to moderate. And then so we should start to see a kind of flattening off of that after -- towards the second half -- towards the -- as we come into the middle of the year.

Okay. But is it fair to assume that the Q-on-Q improvement that you've seen in the NIM so far that's already a bit of a slowdown in Q4. That trend will continue? Because I think majority of repricing might be behind us.

Yes. I mean, as you mentioned, majority of the policy rate increases are already behind us, which means that further rate increases are going to be a bit more moderated.

Okay. Understood. And then I think the last question that I have is on noninterest income. So compared to all your other lines, which are super strong, the fee income line and the improvement, in particular, in Q4 Q-on-Q does look a bit soft compared to that. What would you attribute that to?

Well, there were definitely challenges through the course of the year in terms of building up the noninterest income. And I mentioned some of them which includes on the insurance side, the equity -- the less gains from the equity investments. And then on the retail loan side, also, we've been seeing lower late payment charges due to the lower delinquency levels. So that -- even though it's down for us, it's a bit of a positive development. And then so those are some of the challenges that we've been facing in terms of growing the noninterest income. But there have been upsides as well. As I mentioned, cards has grown strongly due to increased usage and then also on the transaction banking side and in terms of our digital fees, those have also -- those have been growing and contributing to improvement in our fee income.

For the outlook for FY '23, would you be able to share any guidance for that?

Well, I think we -- in terms of the insurance side, the losses that were taken because of the declining markets, I think we should see some recovery in that, and then again, we'll continue to -- as we continue to build out our platforms, we expect to be able to charge more digital fees from customers moving forward.

And just lastly, on the OpEx side, you said there's been some delays in sort of, I think, putting through those costs that you were thinking for the technology side. How should we think about the OpEx in 2023? Should we be targeting a certain CIR? Or are you still thinking about absolute cost growth numbers?

I mean obviously, we are looking to manage the CIR or continue to manage the CIR. But we do expect to see some growth -- I mean some continued growth on the OpEx side, but at a level that is going to be below that, that we project revenue growth to be. And so on technology side, we should continue to see a bit of a higher spend there, probably -- and part of it is going to be as a result of some of the projects that weren't fully implemented on schedule in 2022 are going to transfer over into 2023. Plus, we'll continue to invest on the digital side. We remain very committed in that respect. And so technology spend should be -- we should continue to see some growth there. On the others -- on the rest, we expect to be a bit more muted. On manpower, maybe a little as we've made some structural adjustments to our salary structure and some of them were done later in the year. And so you didn't see the full impact of that through the course of 2022, and we'll see it more in 2023. But other than that, we expect expenses to remain fairly well contained.

If you could share any numbers in terms of how we should think about the cost growth in FY '23. I think that would be very helpful or a CIR that we should be looking at?

Yes. So what we're looking to do is or contain our cost growth to within the high single-digit levels.

Yes. If I can just add one thing, Aakash, on the -- your fee question, because that's one of the things that I'm paying close attention to this year for the team. There are a couple of things that we are doing, as Eric said, really, one of the reasons is they were very muted in 2022 was the fact that our late payment fees from delinquent loans is much lower than the previous year, only because our delinquencies are much slower in 2022 than they were in the previous years. If you take a look at 2022 versus the pre-pandemic I think you'll see we're back to the normal trend. So there are a couple of areas that we are being very focused on, and I'll ask both Ginbee and Tere to talk about what we're trying to do on the fee structure. We have reorganized our wealth product. You know that in asset management wealth is very fee driven by the amount of AUM you have. And so Tere will -- I can ask her to spend a little -- very shortly what she's doing there. And then Ginbee as Head of the Consumer Bank and the branches, we are trying to -- have launched 2 initiatives there to be more deliberate on collecting fees at the branch operations, and then also to launch some subscription-based products on the digital side. So Tere, maybe I'll get you to start off.

Thank you, TG. First, on the wealth management side, so we continue to explore many areas to provide value-added wealth management solutions, aside from the vanilla investment management as well as the offering of our usual UITFs and mutual funds as well as segregated portfolios. We are opening up new solutions for clients to provide estate planning and other wealth management solutions, specifically for the affluent and high net worth customers to allow for more opportunities to generate fee business from our wealth management customers. So that's one. We are also continuing to work very closely with our channels with the consumer network to restart what has been softer in 2022, particularly given the poor performance of the markets. But we're seeing a lot of opportunities for clients to invest again, not just in equity funds but also on bond funds. So we have restarted efforts to work very closely with the retail network to grow aggressively our retail funds business. So those are just some of the initiatives that we are working on at Wealth Management.

Ginbee?

Yes. Thanks, TG. On the service fees for the branches or the consumer bank in general, as you very well know, we are -- have been on the digitalization journey. And as we go through our digitalization journey, we see more and more of our transactions migrating to the digital channel in which case we are transforming the branches from a transactional avenue to an advisory channel. That means that if we are going to migrate more customers to the digital channels, we have to make sure that our pricing models also will be reflective of our digitalization dream. So we are reviewing and we have a view over the [ culture of ] transaction fees for certain transactions that are already available in the digital channel. Digital channel, as you very well know, is more cost efficient. So there is a advantage for doing transactions via the digital channel and we may migrate clients to the digital channel as we increase fees on the over-the-counters so that he can provide more value-added services in the branch channel. Aside from the service fees -- over-the-counter service fees that we are increasing with the hope of migrating transactions to the digital channels. We are also testing and reviewing the opportunity to provide new business models in the digital channel. We are looking at different packages with inspiration of Netflix and Spotify, where you have premium levels and basic levels. So we are looking at new business models on the digital side with a basic package that will be available to the mass market that includes personal cyber insurance and free interbank funds transfers for a monthly fee. For those who are desiring to have advisory and access advisory. We are building robo advisory capabilities. And for those who are interested in that, we are also going to offer a package that includes robo advisory via the digital channel. And that, again, can be done through a subscription model. And then there is, as mentioned earlier by Eric, we are launching new digital platforms and together with the [indiscernible] team, we are going to launch a wealth management platform, which is primarily available to our upper Preferred or Preferred gold clients and private banking clients. But for those who want to access this platform but are not part of that -- those segments then we will provide as well a subscription type of a model. So these are just some of the innovations that we're looking at within the consumer banking.

Great. That's very helpful.

We'll tackle a question from the chat box from Weldon of HSBC. Why has mortgage growth been quite weak? And what's the outlook for that? And how are the results of the aggressive campaign to acquire Citi customers? And should we expect to see continued aggressive marketing or will other spend come down?

Maybe we'll ask Ginbee to tackle first the mortgage and then Jojo can talk about what we're doing on our project to capture the Citibank customer.

Thanks TG. On the mortgage, as mentioned also earlier by Eric, the muted growth of mortgage is really driven by the contraction in the institutional or wholesale finance which is really the developer financing piece of the retail mortgage or contract to sell receivables. These had been the source of our growth in 2020 and 2021 when liquidity among developers was tight. But in this -- in 2022, such is not the case as we see the economy opening up. And so the demand for institutional financing is no longer than we've seen a contraction in the CPS portfolio. However, our regular housing loan or what we call end buyer financing had actually been growing. And in fact, more than covered up for the decline in the CPS portfolio. Our regular housing loans portfolio grew by 10%. And this is really driven by higher -- much higher re-leases, and these are new bookings, new loan bookings of as much as 39%, so that tells you already that the end-buyers segment of the retail mortgage is very healthy and there is demand. The outlook for this year is that, that will continue as the economy opens up. But of course, we will monitor the impact of higher rates, and as we go further to the mass market, we see that as another segment that could provide growth opportunities for us. Last year -- late last year, we launched the MyBahay lending program, which is really the segment targeting the affordable housing segment, where most of the backlog will be.

Okay. On the question of how has been our what were the results of our intentions or our program to capture more Citi customers. We're very pleased to inform you that the project to convince cardholders to switch to BPI in 2022 was very successful. In terms of principal customers, we have grown our principal customers, more than double that we have done in 2021 resulting to a 16% increase in total customer base. That 16% increase -- sorry, 16% increase in total customer base and 19.5% increase in total card base. This compares very favorably to total industry growth of only 10.5%. The fall of your seat offers given to these new customers as well as to our existing clients, has resulted in an increase in billings for BPI of 35%. This, again, is much higher than the industry growth of 26.82%. Finally, this increasing customer base and increase of billings on the cards have resulted to a loan growth to almost PHP 100 billion which is, again, much higher than industry growth. But the industry growth on credit card loans is -- we have grown by 31% versus the industry growth of only 26.8%. This is an ongoing program. It's not just a 1-year thing. So we expect to continue investments in the credit card business. Very pleased to inform you too that, if you recall, in terms of cardholder spend, the combined Citi and UnionBank portfolio was threatening BPI's #2 position in the credit card industry in terms of spend on cards but we have since reclaimed that by the end of 2022, and we intend to continue the growth momentum in 2023 and thus, the spending investments will continue.

Thanks, Jo. There's one more question from Weldon. In terms of tech spend. I think there are several analysts with this question about tech spend, what's our target for 2023, when does the tech spend peak and come down and why digital spending from Eric -- related to that from Eric, [indiscernible] can you talk more about why digital spending was below budget in 2022? And what do you expect this line item to trend in 2023?

Let me start it off and then maybe Eric can give us an estimate of what our budget for tech spend for 2023 is. The reason it was below budget was a couple of projects did not meet completion by year-end as we had planned. That's number one. Also, our tech spend is -- many of our platforms are software-as-a-service, so they're volume related. So when we did not hit all the volumes as we had hoped in 2022, so obviously, the spend there will be much less. But the bulk of it is the fact that many of the projects did not complete in time. And all of these are milestone-based and therefore were much less as -- I think, PHP 12 billion versus PHP 14 billion plan or PHP 11 billion versus PHP 13 billion. Eric, what's your budget for the year for tech?

Yes. So we're looking at PHP 12.5 billion to PHP 13 billion for 2023.

So about 10% higher.

Yes.

Okay. Then I think we can move to DA of JPMorgan. DA, go ahead.

Actually, a lot of my questions have been answered, but I want to [indiscernible] on the cost side -- on the loan side. If you look at consumer, actually, also [ loans that are ] going very well. So cards, auto, personnel except for mortgage. Could you just talk through the drivers of that growth? And should we expect the same going forward? And number two, how are you managing the underwriting side, the risk for these portfolios.

Okay. Maybe we'll do this. I will ask Ginbee to talk about auto and how it was hampered by supply issues. And then Jojo can talk about how the personnel and the card, how that grew given our more aggressive campaign in our underwriting techniques.

Thank you, TG. DA, the driver for auto, albeit there were supply issues, it's really driven by our aggressive partnership deals with different car manufacturers and dealers. We've stepped up on the gas when it comes to lending programs and new products that really resonated among our dealers and car manufacturers. We have launched a partnership with Ford last year. We continue to have strong synergy with the Ayala group, and our dealers continue to look to us because during the pandemic, we were there for them. We are actually the fastest payer of proceeds -- loan proceeds, we do it in one day in which they appreciate particularly during the pandemic when liquidity was tight for them. So all these partnerships and lending programs really supported the growth as well of the dealers and the car manufacturers, which they truly appreciate that. You will see us moving up on market shares across different brands since the pandemic started.

I think before Jojo goes, I think Ginbee brings up a couple of good points. One, that it's not only how fast you approve the lend -- the borrower but the dealer also wants to be paid quickly. So they'll skew it -- the applications towards us. And secondly, some of the major players -- sorry, minor players who think they were in a major way have actually backed off since the pandemic. Jo?

Yes. Okay. Thank you. Moving on now to personal loans. I guess the opening up of the economy in general had increased demand for personal loans. For business expansion, some of our clients use it for business expansion, for home renovation, for travel and the like. We have also embarked on what we call universe expansion because our personal loans are directed primarily at our depositor base. So we have looked at alternative methods of scoring so that to increase the funnel of -- and acceptance of applicants who want to apply for a personal loan, we've also improved our -- strengthened our relationship with the branches. Ginbee's channels so that the output per capita of our branch network on personal loans has increased significantly versus prior years. And we've also strengthened and optimized our digital acquisition for the brand. On credit cards, as you know, we had invested significantly this year coming from the fact that we had lost the Citi portfolio to Union. And so we decided to grow organically and encourage card switching. So likewise, we have expanded the universe -- embarked on again, like personal loans [indiscernible] also a lot clients to be approved. We have also given attractive, what we call, fall of your seat offers and incentives for those that are new to cards as well as to our existing customers. And we have strengthened our data and analytics to encourage top of wallet usage among our customer base.

Thanks, Jo. DA, do you have a follow-up question?

Just for the overall consumer business, are we expecting like high double-digit growth? Is that fair? I think we can surmise that based on the guidance that you gave earlier.