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

Good afternoon, ladies and gentlemen welcome to our earnings call to discuss BPI's results for the third quarter and 9-months period of 2023. This is Chinky Lukban your moderator for this [indiscernible]. I am pleased to introduce you to our speakers and panelists this afternoon. First of all, TG Limcaoco, President and CEO; Eric Luchangco, our Chief Finance Officer; Ginbee Go, Head of Consumer Banking; Tere Marcial, Head of Wealth Management; Jojo Ocampo, Head of Mass Retail Products; John C Syquia, Head of institutional 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 performance highlights and strategic updates. The floor will then be open to questions from the audience. Just some housekeeping reminders before you proceed, please 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 [indiscernible] supply. Now let me turn you over to TG for his opening remarks. TG, go ahead.

Thanks very much Chinky, and good afternoon to everyone joining us on the call today. As you probably all know, we reported very strong earnings last Thursday. And we would be happy to lend color to that. The strong earnings were really driven by continued expansion of our net interest margins as well as strong growth in our noninterest income, which is a proof to me that our digitalization efforts as well as our efforts in expanding our coverage, our distribution as well as our marketing presence is beginning to pay off. Joining me today on the call are the management team, and we are prepared to lend as much color and answer as much questions as you have today. A couple of notes that I want to make at the very start is that as we look forward, we do see some headwinds going forward, particularly from quite, I guess, what I would call muted loan growth going forward as top corporates tend to be postponing their decisions to borrow, either driven by the fact that they are concerned about consumer confidence or the fact that they believe that rates will soon turn the corner and go lower. So they may be postponing their decisions to draw down loans. We do have a healthy pipeline of potential loans. But as John-C may give color later, some of these loans may be postponed into the new year. Secondly, I know there's been some concern about our rising operating expenses. The way we look at operating expenses going forward is that we're very focused on lowering our cost to income ratio, and we will continue to make investments in our technology as well as our distribution and marketing presence for as long as these investments in expenses -- these expenses will deliver continued lift in our revenues and continued lift in profitability. Finally, as Eric will also point out, our NPLs have risen since the start of the year. But a lot of the new NPL formation is not a surprise to us as they had previously been provisioned for. And therefore, we continue to be comfortable with our level of provisioning and our continued interest cover. All of this, we will provide more detail in Eric's presentation as well as be able to answer more questions. in the Q&A. At this point, allow me to turn over this presentation to our CFO, Eric Luchangco. Eric?

Thank you, TG, and good afternoon, and thanks to everybody joining us on this call, our third quarter earnings call. We're pleased to report that the bank delivered another quarter of solid results. For the first 9 months, the bank generated a record income of PHP 38.62 billion, up 26% from the prior year, largely driven by revenue growth. Excluding the impact of the one-off gain from an asset sale last year, net income would have been up 44% year-on-year. Return on equity further improved to 15.56% and return on assets to 1.95%, the highest levels in the decade. Loans continued to expand in the third quarter, though at a moderated pace. The liquidity and capital positions remain robust with LCR at 186.8% and NSFR at 150.2%. The capital position further strengthened, reflecting strong income generation with CET1 ratio at 16.1% and CAR at 17%. Asset quality remains strong, notwithstanding a slight uptick in the NPL ratio to 1.97%. NPL cover remains more than sufficient at 159%. Finally, for the first 9 months, the bank generated an earnings per share of PHP 7.81 per share, up 15% -- year-on-year and 31% excluding the one-off gain last year. We remain on track to return excess capital to investors. We delivered a record quarterly net income of PHP 13.47 billion in this last quarter, driven by stronger revenues, notwithstanding growth in our operating expenses. Sequential quarter net income was at 3.4%, while compared to the third quarter of last year, net income was up 33.3%, driven by revenue growth of 18%. Pre-provision operating income was at 15.9%, while tempered provisioning down 60%, also boosted net income. For the first 9 months of the year, we delivered a net income of PHP 38.62 billion, up 26.4% year-on-year. The result includes net interest income of PHP 76.78 billion, up 24.5% year-on-year on higher NIMs and above industry loan growth. Noninterest income at PHP 24.1 billion was down 6.6% due to a high base in last year's fee income from the gain from an asset sale in the second quarter. Netting that out, noninterest income growth would have been 15.2%. Total revenues at PHP 100.87 billion are up 15.3%. Operating expenses are up 21% driven by volume-related costs as well as growth in technology, manpower and marketing expenses. Provisions at PHP 3 million are 60% lower than last year, which brought net income to PHP 38.62 billion up 26.4%. Excluding the asset sale, fee income would have been up 15%, revenue up 22.3%, outpacing the growth in expenses and net income would have been up 44.1%. We've delivered consistent improvement in returns in the past 3 quarters, ending the first 9 months with an ROE of 15.56% and an ROA of 1.95%. And Earnings per share for the period reached PHP 7.81 per share or 89% of last year's full year EPS already above prior year's EPS notwithstanding the additional outstanding shares from the distribution of common shares through a property dividend, which we did in June. The bank generated revenue of PHP 35.5 billion for the quarter, up 18.3% from last year. We saw another strong quarter in net interest income of PHP 4.4 billion or 19.6% year-on-year to PHP 26.7 billion, as hikes in interest rate -- in the interest rate environment and continued loan growth drove growth despite a high inflation environment. Trading income was at PHP 1.2 billion, down 6.8% year-on-year. while recurring income hit a record PHP 7.4 million, 19.2% up year-on-year driven by volume supported by an expanded consumer base and higher customer engagement. Loans continue to expand on the sequential quarter, though at a moderated pace. Year-on-year loan growth to 8.4% and remained ahead of the Philippine banking industry average as of August, the latest available industry data. NIM is consistently improving, expanding 50 basis points from last year and 5 basis points on the sequential quarter driven by asset-based expansion and higher asset repricing compared to the cost of deposits. Total loans grew at -- stood at PHP 1.8 trillion up 8.4% year-on-year. The loan mix further improved with consistently strong growth from consumer loans, up 20% year-on-year, led by credit cards, personal loans and auto loans. The consumer loan expansion benefited from the use of alternative channels, improved online applications, innovative credit score models and increased marketing efforts. Credit cards are up 7.3% quarter-on-quarter and 37.6% year-on-year, driven by a 46% increase in billings versus last year. Auto loans are up 5.4% quarter-on-quarter and 22.3% year-on-year driven by the good take up of our [ Micro ] share program. Mortgage loans are up 2.9% quarter-on-quarter and 6.4% year-on-year, driven by expansion in end-user housing, up 9% year-on-year, which offset the decline in the CTS bookings. Personal and microfinance loans, on the other hand, posted accelerated growth for the quarter. Personal loans are up 22.5% quarter-on-quarter and 115% year-on-year, inclusive of record new bookings amounting to PHP 2.2 billion in September. Micro finance loans are up 11.8% quarter-on-quarter and 34.3% year-on-year on a 36% increase in loan releases aided by the additional 10 branches opened this year under BanKo. On an absolute basis, corporate loans still grew the most, up PHP 70 billion or 5.3% year-on-year, while remaining relatively stable for the quarter. All told, strong consumer loan growth is consistent with our direction to increase our presence in this area, resulting in an improvement in loan mix, with consumer now cornering 22.2% of the loan book, up from 20% last year. and 21.3% last quarter. On fee income, for 2 years now, our focus has been on growing our client base and deepening client engagement through digitalization. Our incremental improvements for over 8 quarters have produced a record fee income of PHP 7.42 billion, up 19.2% year-on-year on a sizable increase in client base and client activities. While our top businesses have performed well this year, I would like to particularly highlight the card business, which has outperformed their peers. Investments in the franchise over the past year, which contributed to the growth in OpEx have also allowed the bank to gain market share in the card business across important metrics. The card base is up PHP 524,000 or 28% from last year and is nearly 1.5x compared to the 2021 level. This should support recurring income moving forward. Card fees, which account for 29% of total fee income were up 34.6%. Our wealth management customer count is up 29% year-to-date, driven by partnerships with GCash and PayMaya, 90% are digital clients. AUM is up 16% year-on-year, largely driven by steady customer flows rather than market valuation. For all that, fee income is up 2% year-on-year as customers have shifted to investments with fixed returns given the market conditions. As market turns, we may expect higher contribution from the business, given various initiatives under our One Wealth business, which collectively looks under -- after the businesses of BPI Wealth and Trust ALFM mutual funds, private banking and the asset management business in Hong Kong and hopefully soon in Singapore as well. Branch service charges up 14.4% on higher transaction count and loan releases, on housing and auto loans. Insurance is up 46.2% on higher investment income and higher premiums. ATM and digital channel fees are up 14.7% attributable to the 22% increase in fund transfer transactions and a 53% increase in partner transactions. The increase in partner transactions was driven by a higher client count and an increase in the number of partners to over 120, providing more than 6,000 products and services. As we continue to grow our client base, converting existing clients to digital and onboard more partners, we expect digital channels to increasingly become an important contributor to fee income. Above increases were partly offset by fees from transaction banking, which is down 7.3%, mainly on a decline on supply chain financing as contracts purchased years ago are approaching their tail end, resulting in lower balances and lower fees to collect. Securities, brokerage and investment banking are down 17% on fewer notable transactions for the year so far. Asset sales and rental income, both down year-on-year due to a higher base last year from the sale of property and the loss of rental income as the property was being leased prior to the sale. Our balance sheet expanded 7.2% year-on-year and 0.9% quarter-on-quarter to PHP 2.7 trillion backed by sustained loan growth and expansion in the securities book. Our liquidity remained healthy, supported by a stable and reliable franchise. Liquidity coverage ratio stood at 186.8% and the CASA ratio at 69.3%. Deposits increased 1.3% quarter-on-quarter and 6.7% year-on-year with significant migration to time deposits. We did see some competitive pressures as banks prices higher, but we did not see the need to chase deposits with the rate. Loan-to-deposit ratio was at 80.19%, relatively stable quarter-on-quarter and up 151 basis points from last year. Moving on to OpEx Operating expenses stood at PHP 17.2 billion, up 21% year-on-year. Our strong balance sheet and ample liquidity allowed us to continue investments in technology and manpower that will drive long-term value for our shareholders. Manpower cost is up 19.4% due to structural salary adjustments and a slightly higher headcount. So headcount is still lower compared to 2021. Technology expense is up 34.1% on continued investment in digitalization. Also, part of the increase driving technology spend or variable expenses related to business volumes and headcount. Part of the investment in digitalization is booked as outright expense even though it will provide benefits over a longer period. Other expenses include marketing spend, which includes rewards expenses up PHP 1.13 billion. which posted a notable increase as we expanded coverage of our rewards program to expand beyond credit card usage to loans, deposits, investments and payments. We made it easier to view and redeem rewards points using our e-wallet VYBE marketing expenses directly attributable to aggressive acquisition and usage campaigns for credit cards also increased. We continue to make progress in our efficiency initiatives. Our client base expanded to 10 million. We serve this increasingly -- increasing customer account with higher headcount, but continue to increase the average productivity of our employees, supported by our digital initiatives. Cost-to-income ratio declined to 48.2%, although the usual year-end expense bookings is expected to push this up slightly. Excluding the impact of asset sales, cost-to-income ratio was down 41 basis points year-on-year. Although costs continue to grow on an absolute basis, we remain committed to seeing our CIR tighten moving forward. Our NPL ratio stood at 1.97%, flat year-on-year and up 9 basis points from the prior quarter. NPL cover remains sufficient at 159%, allowing lower credit costs. Looking into segments, optics in NPL ratio were seen in corporates credit cards and personal loans while auto, mortgage, microfinance and SME have remained resilient. The increase in NPL ratios in credit card and personal loans are a direct outcome of our deliberate strategy to add risk to grow our consumer book. Currently, our credit card loan book is 1.7x pre-pandemic level, and personal loan book is at 2.6x the pre-pandemic level. With NPL ratios that are 130 basis points and 30 basis points below pre-pandemic levels, respectively. We are comfortable with this outcome. And based on these results, encouraged to extend risk a bit more anticipating that the increasing tilt towards consumer loans will mitigate the revenue impact of declining interest rates. Consistent with the guidance in previous meetings and to address concerns of our auditors on over provisioning, we are on track in gradually lowering the NPL cover, which reached 180% in December last year from 88% in December of 2018. During this period, we accumulated huge provisions by keeping credit costs elevated to as much as 2% in 2020. We continue to book provisions this year, though at a lower credit cost of 23 basis points to partly cover new NPL formation while allowing total cover to decline. For now, we do not see the need to book higher provisions and plan as new NPL formation has remained muted, coming mainly from loans that we have already identified as problematic. You may note from the chart shown that though total NPL levels are increasing, as shown by the red bars, these loans have largely been fully provisioned, even ahead of coming into NPL, as shown by the dark blue bars, which show specific provisioning. Total provisioning is slightly up. Meanwhile, in the gray bars, you will note that restructured loans has been declining. Even if the NPLs share of restructured loans, as shown in the dark gray bars, is increasing as a percentage of -- is increasing as a proportion of total restructured loans. In addition, our Stage 1 and Stage 2 ECL are lower compared to the start of the year, though total ECL increased slightly driven by new loan bookings. Altogether, we remain comfortable with asset quality in the loan book as problem loans are coming from where we expected them to come from and have largely been fully provisioned. Turning to regulatory capital. Our CET1 capital improved to PHP 318 billion, and indicative CET1 ratio improved 48 basis points to 16.1% and CAR by 49 basis points to 17% as risk-weighted assets increased modestly. In the past 12 months, we've improved our CET1 ratio by 17 basis points, notwithstanding the higher cash dividends in the first half. Moving on to our digital updates. Our goal has been to acquire clients in the fastest and cheapest way. We now have 9.85 million retail clients from 9.2 million at the start of the year with 39% of new clients onboarded digitally through either our mobile app, e-Wallet by agency banking partners or GCash and PayMaya. Digital adoption among our clients remains strong with 93% of retail transactions now digital. Converting clients to digital clients is key to our growth strategy and is progressing nicely with 3.52 million digital clients as of August. This is 7x the 2019 count. Digital clients are 3.1x more engaged and generate 1.74x revenue per capita, driving fee income. On our 7 digital client engagement platforms, you may already be familiar with this slide from our last earnings call, which shows the current block of our apps. We're also pleased to share updates on the new and coming soon features, which you'll see above as well as progress made since our last earnings call on the key metrics we monitor as detailed below. We have 130,000 sign-ups to buy 6.2 million users on the BPI app. 88% of BPI Securities customers are using BPI trade, 266,000 enrollees on BanKo, 14,000 on [indiscernible] 44,000 penetration rate on BizLink while development on our BPI Wealth app is still ongoing. We continue to evaluate customer behavior and market take-up of our digital platforms, so that we can recalibrate strategies on how we become their everyday bank. Integrated into their ecosystem and part of their every financial journey. We have recently launched BPI salary on demand, the new addition to our long line of innovative products. BPI salary on demand allows employees to instantly access their earned salary in advance any time and everywhere with minimal processing fee. The product is available in the Pay wage app and employees may withdraw up to 30% of their earned salary in advance. Since BPI salary on demand is not a loan, it is interest-free, but subject to a fixed processing fee. BPI salary-on-demand is designed to complement BPI's payroll solution and offered exclusively to our BPI payroll clients. BPI handles payroll for about 4,500 companies with a total of 1.9 million employees. Agency Banking is on track to expand the BPI network with 20 partners and more than 5,000 partner stores by year-end. Many of these new outlets in green dots on the map, are located in municipalities and towns where BPI does not have a presence. And many of them are open on weekends and holidays, some even 24/7. In addition to deposits, loans and insurance products, clients may avail of salary on demand and make payments using QRPh. In the past quarter, we added 2 partners, Food Panda and Vista and 2 new products, Bills Payment and Salary on Demand. Cash in and cash out transactions, which will allow these stores to operate like a branch will be available in the fourth quarter of next year. Moving on to VYBE. VYBE supports over 530,000 customers. 20,000 of which are new to bank. Current functions include payments and transfers. VYBE also hosts our awards program, making it easier for clients to view and redeem rewards points. VYBE has a critical role in meeting the call to -- for our 50 million customers to make sure no one is left behind, VYBE offers 3 options to join depending on the customers' eKYC level. For anyone with a mobile phone, even without an ID, can enroll in VYBE light and may later upgrade to VYBE regular using a valid ID. Existing BPI customers can enroll in VYBE Pro using their BPI online username. While it limits and functions are tiered according to the level of completed eKYC. We look forward to the pilot of Cardless withdrawal, a unique offering among e-wallets by December 2023, which will improve VYBE's chances of acceptance success when we do a media launch, which we have scheduled for the first quarter of next year. Moving on to our new mobile app, which we launched in March, we have completed the migration of features in the new app, launched the web version and have decommissioned the old version of both online -- of both the online and app last week. As of October 16, we have 4.4 million downloads in the new version of our app. The new app features an improved user experience and clients can start banking instantly via the app. The app also features AI-powered tracking and insights of first among local banking apps, allowing it to offer financial advice, payment reminders and actionable tips to help Filipinos improve their financial wellness. Looking ahead, we have a number of features to be added to the app, including enhanced debit and credit card controls, scan to pay for person to merchant, for credit cards, especially installment programs like credit to cash and balance conversion and mobile check deposit. This new BPI app is a key component to making the bank more accessible to Filipinos through physical branches and digital channels and platforms. In the third quarter of 2023, BPI continued to be an inclusive, innovative and trusted pioneer in responsible banking. We entered into a PHP 250 million green bond deal with the International Finance Corporation, the proceeds of which are allocated to projects with clear environmental benefits. The deal is the largest deal to date IFC has with a Philippine Bank. We established a responsible lending policy, further enhancing the integration of environmental and social risk to the bank's credit quality assessment process. As part of the bank's continued commitment to financial inclusion via digitalization, reached over 800 active retailer nannies or mothers through the BPI e'Nay app, empowering sari-sari store owners to quickly, easily and conveniently order, manage and pay for their inventory. As part of the bank's continuous sustainability awareness, the BPI senior management team shared their knowledge in more than 10 sustainability-oriented events, reaching students, local government units and small and medium enterprises and even some larger corporates. Finally, BPI also partnered with DHL for their GoGreen flyer recycled box program allowing the recycling of parcel containers used by the bank for its operations. Lastly, on the merger between BPI and Robinson's Bank Corporation, the merger has been approved by shareholders on both sides, and the Philippine Competition Commission has cleared the merger. We are now just waiting for approval by BSP and SEC, which we target to secure before January 1, 2024. Allow me to provide a summary of our presentation. On profitability, we saw improved profitability and shareholder returns. Revenue generation remains strong. Loan growth has moderated while liquidity and capital ratios remain very healthy. On asset quality, despite upticks in NPL, strong asset quality is maintained with more than sufficient cover. And lastly, on digitalization, we delivered strong client acquisition and higher customer engagement, supportive of income growth. We will be monitoring closely the potential impact of high inflation, elevated interest rates and geopolitical attention to our business. We are confident, however, that the bank is well positioned to respond to a changing operating environment in order to deliver growth and enhance shareholder value. Thank you, and we now open the floor to questions.

Thank you. Ladies and gentlemen, the floor is now open to your questions. [Operator Instructions] We'll take the first 2 questions from the chat box. The first one is coming from Yong Hong, of Citi. His 3 questions are as follows: Based on your pipeline and what you're hearing on the ground, what is your loans growth expectations for fourth quarter this year and for next year? Number 2, do you think NIM has peaked in the third quarter and how much of your loans portfolio has yet to reprice and your funding cost outlook? And finally, what should we expect from your comments on excess capital distribution to shareholders?

Thanks, Chinky. Let me take that first. First of all, I did mention that we are seeing kind of muted demand on the corporate side. I'll let John-C talk a little about that. But I think we are -- I guess we are optimistic and we continue to hope to get 8% loan growth by the end of the year. That will be really driven by how well we can grow our corporate loan book, which makes that about 70% to 75%, although our consumer loan book is growing quite strongly. I am not too concerned about the loan growth on the corporate side because our corporate spreads are kind of narrow versus alternatively putting it into the BSP securities. We are very focused on continuing to grow our consumer book, which I think for the third quarter grew in excess of 20%. And Secondly, the question about NIM peaking in the third quarter. Based on our all quarter reports and as we review it and we're already practically through in October, we continue to see some expansion in our NIMs going forward, albeit quite at a muted rate compared to how it was growing earlier in the year. I think this is driven mostly by our ability to be very deliberate in our funding strategy, as Eric did mention, we are not competing aggressively for time deposits, which I continue to believe remains unreasonably elevated today from some banks that are continuing to try to grow deposit market share. And then finally, on excess capital, we continue to -- we will hold to our dividend policy, which we have articulated quite clearly that we have a clear dividend payout ratio of 30% to 50% of the previous year's earnings, and I believe we can continue to hold on to that in the second half of this year as well as next year. I don't know, John-C, if you want to make a little comment about what you're seeing on the corporate side, that drives a lot of our -- our loan book is about 70% top corp or large corp, sorry.

Sure. Yes. So Good afternoon to everyone, and thank you for joining us today. Yes, so just to build a bit more on what TG as mentioned, definitely for capacity building for different sectors that we serve, we're seeing more a delay rather than a cancellation of projects. And delays, I think as TG had mentioned in the early part of the introduction part of our call, is due partly to expectations or managing expectations on rate movement. And secondly, also a better view on some clients that give better view on prospects of their respective sectors. But for all intents and purposes, I've not seen in our pipeline total cancellation. So what you might want to look at is more of a shift timeline-wise on some of these CapEx projects. That's for those that are under control of our clients. And I think I mentioned in our last earnings call, as well. There are some projects that are at the mercy of approval processes. So there have been some privatization transactions that have taken place or M&A transactions that have taken place already, but are subject to approval of different regulatory bodies. So that 1 definitely also adds to some of the delay for CapEx loans that we have in our pipeline. And maybe I'll add some color also on the working Cap side. And I guess, in a way, difference in the way our GDP growth made CapEx look like. It's definitely the super solid strong growth on the consumer side. But there is this phenomenon where -- while prices have gone up and then values of trades have gone up. The actual volume of units is not growing at the same pace, and that's because of the inflation effect. So what we're seeing in the working cap buildup for inventory in the last 2 quarters, which is second and third, it's been less than what we originally expected. So what we're hoping to see is that there's still going to be a buildup towards year-end to serve the typical Christmas rush. Maybe I'll stop there TG and Ginbee follow-ups.

Okay. Thanks.

Today, I also give additional flavor TG. On the consumer book side, particularly auto and housing, we see very strong growth and demand from both areas, in particular, auto loans. Our auto loans book has grown by 21% really driven by our new program that targets the lower income wherein we offered the [indiscernible], which has a longer-term [indiscernible], 11% of our growth this year is driven by [indiscernible] which really shows the strong growth and demand from the more affordable models. Affordability remains to be a strong driver for the consumer loans book. And therefore, a lot of the lending programs and new products that we have in the pipeline is really geared towards increasing and expanding our universe of prequalified consumers and also making lending more affordable to more Filipinos. You've seen 6% growth. You've heard the 6% growth on retail mortgage, it's really driven by regular housing loans, which means that there's still demand in the pipeline. And we see good growth, primarily driven not just by lending programs, but by strong partnerships as well with our developers. And we have been very keen on making sure that we accredit more and more developers to make more housing projects available to our customers. Our depositors remain to be the main source and driver of our loan books -- and that is also why from an NPL standpoint, we have actually -- have already returned to prepandemic NPL ratios, which, again, is a signal that we are ready to become even more aggressive in the coming months and the following year. At this point, let me turn you over to Jojo for credit cards.

Yes. And maybe I will also address the question of one of the -- in the chat box addressed by Elizabeth [ Santiago ] with regard to her question on what percentage of credit card performance is driven by new clients. We have actually acquired for 2023, about 400,000 new principle customers. That's about 20% of our customer base. This new acquisition, which we have actually done in the last 2 years via an aggressive card switch strategy has actually led to a growth on the spend per card by 46%. That's the actual number of purchases on the card by 46%, leading to credit card loans growth of about 38%. This is significantly stronger than the growth of the market where spend on the card had actually only increased by 35% versus our 46% and loans on the -- of our total industry up by 30% versus our 38%. Now to the question of Elizabeth, the growth on credit card loans, about 20% of that is coming from new customers. So our aggressive acquisition has actually driven both spend and customer base as well as loans, as well as new customer loans. Now with regard to what percent is coming from grabbing share from competitors? Actually grabbing share from competitors, you could see that the balance 80% has really been driven largely by grabbing share from competitors given the significant increase in our credit card loans and credit card billings as compared to industry growth.

Thanks, Jo. I will move on to the questions from [ Jo Serino. ] First, on asset quality, what's the gross NPL ratio and cover of your consumer segment? How about for credit cards specifically.

Well, I just did the calculation. For our consumer book, our NPL ratio at the end of the third quarter was 4.34%. And I'm not sure whether we actually hedge -- we break out the NPL cover for that. I don't know -- I know we have specific provisions for the consumer book based on a very clear formula as to how many days passed due they go as opposed to, let's say, a corporate loan where we can make specific provisions based on our assessment of whether that corporate will pay, but I know in the consumer book, we do have a very clear formula. Like if a consumer loan goes 30 days past due, then you put so many provisions, I think, over 90 days, you begin to already, talk close to 100%. I don't know, Jo or Ginbee, if you want to put some color there to educate.

Yes. For credit cards NPLs, our NPLs are still very low at about 3.5% to 4% level, which is still very low compared to the industry. And our cover is at 1.42%. So we have sufficient provisions for our NPLs.

Yes, for housing and auto loans. Auto loans and housing are collateralized. And our NPL cover is really driven by our expected credit losses. And so these consumer loans because they're collateralized, our NPL cover would be around 70% to 80%. But having said that, our -- if you consider collateral cover, that would be more than 150% to 180%.

Sorry, I stand corrected, our NPL cover for credit cards as of September is 1.8, in fact, larger than the 1.4 that I told you earlier, and our NPL ratio is at 3.47 to be exact.

Okay. Thanks, Jo and Ginbee. Jo's question is number 2 is what's the comfort level of the bank in terms of investment securities as a percentage of total assets?

Maybe I'll let Dino answer that. Really, from a management point of view, we would rather be lending into the market than putting into investment securities for the government securities, but it's really driven by excess liquidity that we have and then our long-term funding strategy that Dino, as treasurer is allowed to take. Dino, maybe you want to give some thoughts on where we spend in terms of our total investment securities and your view on the market.

Yes. Hi. Good afternoon everyone. I think Eric showed earlier, the growth in our securities portfolio is about PHP 16 billion, I think, from start of the year or thereabouts, it's actually small. Most of this increase is actually in short-term security fees. It's just parking some extra funds that we have -- our base case is that the rates are going to stay higher for longer. So we're not buying very long-term securities at this point. We'd rather wait for how monetary policy unfolds, not only here in the [indiscernible], but also in the U.S. because it has a significant impact on the local markets. So we're still waiting for the right time to invest heavily in the government securities.

Okay. Thank you Dino. And Jo's last question. Can we expect NIMs to continue moving up in the fourth quarter? With NIMs likely to remain elevated through to the first half of 2024?

I think I spoke about that already, where I talked about our outflow while reviewing our NIMs for October being higher than September and higher than the third quarter. I do believe that we will continue to see these types of NIMs going into next year as well as for the first half of next year.

Okay. Thanks TG. The next question is coming from Francis Subido from AP Securities. Does management foresee any one-off integration costs arising from the merger with RBC around what range will it be? And also is there potential complexity in the integration of RBC's infrastructure into BPI.

The one-off cost that I see with the merger with RBC is reformatting their branches, which I think we plan to do over the next 2 years, basically painting them green into red -- and we -- I think we will be rationalizing the number of branches that they have in our branches as well. There is a big cost temporarily as we move their data center out of the Robinsons or JG Summit data center for us, but eventually moving all their systems onto our platform. I do not think there is significant complexity into integrating their operations into us -- that is a relatively smaller operation and the way we have worked with the management team of Robinsons, it's really to try to move as many of their clients and as many of their products onto our existing product base with the exception of motorcycle loans and teacher loans and now one variant of the credit card, I think [ Jo ] right? But otherwise, it's going to be a fairly simple integration.

Thanks, TG. We'll take a question from DA Tan of JPMorgan.

Can you guys hear me?

Yes, we can. Go ahead.

All right. Just 2 questions from me. First is on NPL cover. You guys have been running it down the last few quarters as you've been providing around 20-odd basis points credit costs. I recall you had some discussion on your conversations with auditors as well. And if we look at pre-COVID, your NPL cover is closer to around 120. So my question is, are you still comfortable running it down further? Any target here? And how should we think about credit costs going into next year?

So maybe I can take that. On the discussions, as you do know, and as we have mentioned, that we have had discussions with the auditors about bringing this NPL cover down. We're expecting to probably end the year at about 150%. And if conditions hold up as they are right now, we expect we should be able to take it down a little further through the course of next year. But we're continuing to monitor the situation. Obviously, we do want to be very careful and monitor very carefully how this situation -- how the economy evolves over the -- in the coming months. But if things do hold out as we believe that in the condition that they are now, then we believe we have room to take it down a little further.

And any early thoughts on credit costs next year as well? Will it be the same range as this year?