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

Welcome to our earnings call to discuss BPI's results for the fourth quarter and full year of 2023. Chinky Lukban, your moderator for this afternoon session. We are conducting this briefing in a hybrid manner with our BPI speakers and panelists in our headquarters here in Ayala Triangle Garden Tower 2, in Makati city while others are dialing in remotely. I am pleased to introduce our speakers this afternoon, TG Limcaoco, our President and CEO; Eric Luchangco, our Chief Finance Officer and our Chief Sustainability Officer. We are also joined by the rest of the BPI leadership team in person and remotely. This afternoon's agenda will start with opening remarks from our President, TG Limcaoco, followed by our CFO, Eric Luchangco, who will walk you through our performance highlights and strategic updates. The floor will then be open to questions from the audience. The presentation is being recorded and legal disclaimers apply. Now, let me turn you over to TG for his opening remarks.

Thank you very much, Chinky, and nice afternoon to everyone who's joined us today here physically at our headquarters in Makati, as well as to everyone who's joining us remotely. Today we are presenting our full year numbers for 2023. And Eric has created a presentation that provides significantly more detail and more granularity into our results. I believe that the results speak for themselves. They're quite strong and gives me optimism as to what we are looking forward to this year. A couple of things I do want to point out before Eric comes on, is the fact that we do have record earnings for 2023 up significantly almost parallel to the kind of growth we saw in 2022 if you do X one off. We also have very strong growth in the fourth quarter for both our deposits and our loan book, which I believe allowed us to gain market share for the full year. Finally our NIMs continue to expand throughout the year and we see this as something that will be steady and possibly continuing for the first part of this year. The second part of the presentation is where we will walk you through the progress that we have made in the last 2 years since we presented our strategic imperatives in July 2021. It will be self-reflection where we will talk about what we believe we have achieved and where we believe we have fallen short and therefore what remedies we are taking to catch up on these targets. As usual, the whole senior management of BPI is present here today. I'll acknowledge them later as we do the Q&A but at this point allow me to turn the mike over to our CFO Eric Luchangco. Eric?

Thank you TG. Pull this down a bit, not quite as tall. So good afternoon, and thanks to all of us, all of you joining us for our fourth quarter and actually full year earnings call. We're pleased to report that for 2023 we had another year of solid results for BPI with the bank generating record income of PHP 51.7 billion up 30.5% from the prior year, driven by record revenues. Excluding the impact of the one off gain from an asset sale last year that income would have been up 44% from last year and return on equity further improved to 15.35% while return on assets was up to 1.93%. Loans and deposits continued to grow up 10.5% and 9.5% respectively. Liquidity and capital positions remain strong with the LCR at just over 200% and NSFR at just over 150%. The capital position further strengthened reflecting strong income generation with indicative CET1 ratio at 15.3% and the CAR ratio at 16.2%. The quality remained robust with an NPL ratio of 1.84% and NPL cover was at 156%. In 2023, we added 1.7 million new clients and delivered the most improved and highest Net Promoter Score among local banks. We gained market share in several of our businesses and continued to make significant investments in our people products and technology. In December, the bank received approval to merge the combined resources and networks of BPI and Robinsons Bank effective January 1, 2024. On our performance in the fourth quarter, we delivered a net -- quarter net income of PHP 13.1 billion now 3% on the sequential quarter from the usual year end increase in operating expenses up 19% offset -- which offset the increase in revenues, which were up 6%. Compared to the fourth quarter of the previous year, though, net income was up PHP 4 billion or 44%. Driven by revenue growth, which was at 21%. Net interest income was up 18% driven by loans, which were up 10% and NIM up 40 basis points. We posted record trading income up 93% year-on-year and fee income was up 21% on higher transaction count and volume. Income before provision was up PHP 3.8 billion or 29% reflecting a sustained positive jaw. Finally provision was down PHP 667 million or 40% further boosting our net income. For the year -- for the full year we delivered record net income of PHP 51.7 billion [indiscernible] 5% from the previous year's PHP 39.6 billion. This was largely driven by record revenues and lower provisions which offset the increase in operating expenses. These results include revenue at PHP 138.3 billion which was driven by record net interest income up 23% and record trading income up 37% which offset the decline in fees. Operating expenses were up 19% driven predominantly by manpower, technology and marketing expenses. Pre-provision income at PHP 69.2 billion was up PHP 8.7 billion or 14% and provisions were down PHP 5.2 billion or 56%. If we exclude the one off gain from the asset sale of last year, of 2023, fee income in 2023 would actually have been up 17% and total noninterest income would have been up 19% revenue. Revenue was up 22% and would have been ahead of the 19% increase in operating expenses. Pre-provision operating income would have been up PHP 13.7 billion or 25% resulting in PHP 15.8 billion or 44% increase in net income. In many ways the one off sale -- once the one off sale is stripped out 2023 showed even greater growth than 2022. Net interest income was slightly better but noninterest income was much better. From a 2.3% growth in 2021 -- from 2021 to 2022 noninterest income grew 19% from 2022 to 2023. With both trading income and fee income showing double digit growth as a result, [ BAU ] net income growth in 2023, outpaced the net income growth from 2021 to 2022. We have delivered consistent improvement in returns over the past 4 years with an ROE of 15.35% and an ROE of 1.93% in 2023. Earnings per share for 2023 reached PHP 10.45 per share up 32% compared to last year's earnings per share of PHP 8.78. Our balance sheet expanded 11% year-on-year and 7% quarter-on-quarter to reach PHP 2.89 trillion backed by loan growth, up 10.5% and deposit growth of 9.5%. The ADB on loans was up 10.8%, while ADB on deposit was up 6.3% year-on-year. Our liquidity remained healthy, supported by a stable and reliable franchise. 84% of the deposit growth last year was from retail customers, notwithstanding the lower branch count. Growth in time deposits offset the decline in CASA, resulting in a CASA ratio of 67%. While competitive pressures on deposits continued as some banks pushed prices higher, we focused on managing our excess deposits and did not blindly chase deposits with rates. As a result, our loan-to-deposit ratio continued to improve, up 181 basis points quarter-on-quarter and 76 basis points year-on-year. Excess deposits were invested in securities, which were up 17%. Total loans stood at PHP 1.94 trillion, up 10.2% year-on-year and 7.8% quarter-on-quarter. All of the segments posted strong volume growth -- all segments posted strong volume growth led by consumer loans up 21%, while institutional banking loans increased 7%. The loan mix shifted 230 basis points in favor of consumer loans to now reach 23.2% from 20.9% in the previous year. We'll see the breakdown in greater detail on the following slide. Credit cards growth -- sorry, on the following slide. Yes. Here we go. Okay. Looking to the performance of the segments. Growth was broad-based and was led by credit cards, up 38% as the card base expanded by 480,000 or 24% [Technical Difficulty] and special installment plan loans were up 28% year-on-year. The market share in credit card loans grew by 112 basis points year-on-year to 19% as of December 2023. Other loans up 24% with growth observed in both auto loans and the [ floor ] stock portfolio. Our share in the Philippine banking system of outstanding auto loans as of September 2023 was up 60 basis points to 14.8%. Loan releases over the past 12 months have been consistently higher than previous year's levels with December posting 27% year-on-year growth in loan releases. Mortgage is up 6.7%, which is comprised of 82% end-user mortgage loans and 18% contract-to-sale portfolio. Regular mortgage loans grew 10% year-on-year, driven by successive record loan releases, which reached $5.1 billion in December, up 54% from last year. The contract-to-sale portfolio, which was -- was down 6%, largely due to a lack of supply in the primary market, while the market share in regular housing loans was stable. Personal loans posted the fastest pace of growth, up 109% driven by diversification of channels, the launching of new products and expansion of prequalification criteria. Monthly loan releases were consistently higher than previous year, with December loan releases reaching PHP 1.5 billion, which is 2x the previous year's level. Microfinance loans are up 34% on a 38% increase in loan releases arising from the additional 33 BanKo branches and the rollout of the BanKo roving vehicles that bring BPI closer to communities where access to banking services is limited. Institutional banking loans, by far, our largest borrowing segment saw strong loan growth in the last quarter to end the year 7% higher, with positive indications for growth expectations in 2024. Moving on to asset quality. The NPL ratio stood at 1.84%, up 8 basis points year-on-year, but down 13 basis points from the prior quarter. NPL cover remained more than sufficient at 156%. Looking into the segments, upticks in the NPL ratio we're seeing in institutional banking, credit cards and personal loans, while the remainder of the loan segments have remained relatively resilient. The increase in NPL ratios of credit card and personal loans is directly linked to our strategy to expand our market and grow our consumer book. Notwithstanding the upticks or credit card businesses -- our credit card business continues to maintain the lowest past due rates among the top 5 credit card issuers in the industry. Consistent with guidance in previous meetings and to address concerns of our auditors on over provisioning, we reduced provisioning to gradually lower the NPL cover during the course of the year to end 2023 at 156%, which is down from the peak of 180% in December of 2022, which was due to the anticipation of rising borrowers stress due to the higher interest rate environment. We are confident that our provisioning is more than adequate. In addition to the 156% provision cover, collateral cover is close to 200%. Moving forward, we expect credit costs to normalize closer to pre-pandemic levels. On NIM, contrary to early year expectations that BSP would adopt an easy monetary policy in 2023. BSP delivered a total of 50 basis points worth of rate increases through the course of the year. Higher rates supported further NIM expansion to 4.09% from 3.59% or 50 basis points up from the previous year. Higher NIM was also supported by deposit cost management and higher allocation of consumer in the loan mix. Fourth quarter NIM, however, declined by 2 basis points after 3 successive quarters of expansion as the impact of higher asset yields and higher LDR was offset by the increase in cost of funds, particularly with our time deposits. For 2023, the bank generated record revenue for the second year driven by record net interest income and record trading income. Fee income was down 3% due to the one-off gain last year. But if not for that, as explained earlier, it would have been up 17%. Fourth quarter fee income also posted strong growth year-on-year, up 21%. This positive trend in fee income has remained intact for 6 sequential quarters. On our fee income, card fees were a major driver of fee income growth, up 33%, driven by a 27% increase in average active consumer base -- average active customer base, sorry. A 45% increase in transaction count and a 41% increase in billings from retail, cash advances and installment loans. 40% of new clients in 2023 were acquired through digital channels, up from 33% in the previous year. As a result, we gained market share across important metrics. Client-based market share grew 83 basis points to 18.2%, and card billings market share grew 120 basis points to 19% as of December 2023. Please note that these will also show up in marketing expenses as we spend to acquire and engage clients in our cards business. Wealth management fees increased 6% with AUM expanding 19% year-on-year with 16 months of successive net inflows. Our client base expanded 31% with 98% of new clients acquired digitally. Market share of the trust industry rose 3 percentage points to 19.4% market share in UITFs -- sorry, market share in UITFS was up 1.7 percentage points to 30.4%, and market share in mutual funds was up by 5.6 percentage points to 57.5%. All of these were as of September. BPI Wealth also launched last year the signature Private Wealth experience, which underpinned the 36% increase in private wealth AUM. Branch service charges were up 18%, driven by a 15% increase in transaction fees and a 10% increase in transaction count and branch commissions were up 27%, notably from new bancassurance product and service penalty charges were up 10%. Income from insurance is comprised of equity income from joint ventures, royalty fees and branch commission. For 2023, insurance income -- insurance fees were up 43% year-on-year from higher equity income, up 52% and higher branch commissions, up 32%, following a 20% increase in new plants for the year. Fees from ATM and digital channels were up 16%, driven by higher ATM and digital transaction counts that were subject to fees. Fees such as services from our open banking payment gateways and real-time payment systems with the onboarding of 19 new partners to bring total partners to 128, offering 16,000 services from only 2,000, which were offered in 2022. Transaction banking was down 7%, driven largely by a decline in supply chain revenue as receivables from contracts purchased years ago are nearing their final maturity. Remittance fees were up 19% from a 36% increase in transaction count and a 19% increase in volume. Market share in land and sea-based remittances grew 5 percentage points to 28%. Retail loan fees were up 17%, driven by higher loan origination while securities brokers and IB fees were down 14% on less active markets. BPI Capital, however, continues to rank first in the Bloomberg League table for debt capital markets and second for equity capital markets. The decline in asset sales and rentals was largely due to last year's sale of the Pasong Tamo property, which is also being leased prior to the sale. As told, we saw solid growth in fee income, and we expect to carry this momentum forward in 2024. Moving on to expenses. Operating expenses increased 19%, led by manpower, technology and marketing expenses. Manpower spend increased 19%, driven by structural salary increases and a slight increase in headcount. Technology expense was up 29% from volume-related expenses, investments in new products and services, platform enhancements, regulatory compliance and cybersecurity. We also saw higher volume-related technology expenses across our businesses. Premises was flat year-on-year as the decline in lease from the decline in branch footprint was offset by improvements in repairs and maintenance. Regulatory was down 8% due to a decline in fines associated with the Agri-Agra compliance. Other expenses, up 34%, was predominantly from rewards, marketing, advertising and other expenses pertaining to client acquisition and higher client engagement. While the increase in costs was not insignificant, it did bring some meaningful benefits. We added 1.7 million new customers and clinched the #1 position in NPS among banks. We saw a good growth in volume across the bank and gains in market share. We achieved operational efficiencies with a decline in cost-to-income ratio after adjusting for the one-off gain. And while we believe that managing cost is an important task for us, especially moving forward, we also believe that as long as we maintain a positive job, we continue to be on the right track. Looking at our capital. Over the past 12 months, our CET1 capital improved to PHP 324 billion with indicative CET1 ratio up 15 basis points to 15.3%, and CAR by 14 basis points to 16.2%. These are notwithstanding the higher cash dividends that we declared this year. Our capital ratios remain well within regulatory and internal thresholds. And if anything, are too big a capital buffer. Our rating agencies are very happy. We do look to bring these down gradually through an increased dividend payout. Strong earnings in 2022 allowed for sharp increases in the capital distribution last year following the bank's shift from a fixed dividend amount per share to a variable dividend amount, the bank declared a total dividend for the year of PHP 3.36 per share, up 58% from 2022 and 87% from our old fixed dividend. To summarize the financial performance. On profitability, the bank delivered another year of record income, reflecting strong business momentum across its businesses. Our balance sheet further strengthened with higher liquidity and capital ratios. Our asset quality remains strong with more than sufficient cover. And lastly, on growth, we delivered strong new client acquisition and client engagement, resulting in record volumes and increases in market share in several of our businesses. We're proud of what we have accomplished in 2023 with the strength of our balance sheet and our franchise, we are well positioned to follow through on our 5-year imperatives while sustaining share value creation and profitability, which leads us to the second part of our presentation today. At this point, allow us to provide you with an update of what we have accomplished 2.5 years since our second quarter earnings call in 2021 when we shared with you our key initiatives, which include increasing the share of consumer loans and SME, which we call business banking in our loan book. Establishing ourselves as the undisputed leader in digital banking, using branches as sales stores more than service points, closing the gap in funding leadership and promoting sustainable banking. All of these are underpinned by our passion for the customer. On growing the share of the consumer and business banking loans in our loan book, we closed 2023 with loans at PHP 1.9 trillion. -- up PHP 456 billion or 31% from 2021. Over the past 2 years, our combined consumer and business banking loan book has been growing faster than institutional banking, which is in line with our goals for growing the loan book. Loan growth has been strong across all segments, led by credit card, personal and microfinance loans, and we grew market share across all segments from 118 basis points for mortgage to as much as 600 basis point market share growth for microfinance. Notwithstanding the gains in volume and market share, asset quality improved with NPL amount, NPL ratio, NPL cover at more favorable levels than we had at the end of 2021. The addition of Robinsons Bank's loan book, which is 45% consumer and the strong growth we expect from motorcycle loans and teachers' loans makes us confident that the loan mix will continue to shift in favor of consumer over the coming years. On establishing ourselves as a leader in digital banking, back in 2021, we mentioned that our loan growth -- that our goal is to leverage our digital assets and capabilities across our businesses and to do this, we need to sustain the growth of our platforms. Since 2021, we have delivered 6 digital user platforms. BPI's e-wallet VYBE, where anyone can be a client, including those without any ID. The new BPI mobile app, which features new-to-product and new-to-bank features. This is the first banking app in the country to feature AI-powered tracking and insights. The app offers financial advice, payment reminders and actionable advice on financial wellness. This new BPI app is the key to the bank's phygital approach to make the bank more accessible to Filipinos through a combination of physical branches as well as digital channels and platforms. We recently fired up our BPI trade app, where you can trade seamlessly on your mobile. It is currently in soft launch. And we continued with enhancement to our [ basical and biz ] platforms to address cash payroll and payment requirements of small business and corporate accounts. To be honest, improvements in these 2 apps has lagged what we wanted, but we continue to work on optimizing them to achieve the client experience that we want for our customers. Work is still ongoing on our seventh app design for high net worth clients, and we hope to make it available soon. While we have lagged relative to our plans on some of our digital banking platforms, we continue to believe that we deliver a superior digital banking experience to the widest customer base in the Philippines. We also invested in our service platforms to increase our capabilities in open banking, real-time payments [Technical Difficulty] 19. These initiatives enabled us to expand our client base to 11 million and enabled us to efficiently service 1.5x the transaction count and 2.4x the transaction value with a lower headcount than we had in 2019 due to our clients' strong digital adoption. On the role of new branches -- despite the streamlining of branches that we have engaged in over the last couple of years, we continue to believe in the value of physical branches. We continue to open branches where it's needed in areas where we don't have a branch present -- a branch presence, even while consolidating and colocating existing branches in oversaturated areas, with an eye to not losing any territory coverage. From 2019 to 2021, we have [Technical Difficulty] even more remote areas where it may be more difficult to build a full branch. For the BPI branches that remain, we will unlock the power of phygital banking in delivering a differentiated customer experience at the branch. We have already transformed 19 [Technical Difficulty] to further enhance their digital -- their banking experience. We have meeting pods and meeting rooms equipped for virtual conferencing capabilities to [Technical Difficulty] this year, we are targeting to transform another 50 branches initially with the potential to ramp up further in the second half of the year. We do not see the need to keep the same number of branches as branch transaction count has significantly declined and shifted towards digital channels. Average daily transaction count in the branch dropped 22% to 395 in 2023 from 507 million in 2019. Total branch headcount also declined 20% as we reduced the number of branches and the average headcount in the branch. Notwithstanding the lower number of branches, our deposit volume and market share grew as we grew average deposit per branch. We delivered this while incurring savings from having a lower number of branches and branch employees, which we estimate to be roughly PHP 2.5 billion per year. Last year, we introduced agency banking which creates partnerships with convenient stores -- with convenience stores, department stores, supermarkets, gas stations, pharmacies to make our products available to the customers served by our partners. Agency banking instantly expanded the BPI physical network from the 709 branches, as shown in the red dots on the map on the left-hand side, to over 6,000 with 5,344 partner outlets as shown in the green dots on the map on the right. Many of these outlets are located in municipalities and towns where BPI does not have a presence and many are open on weekends and holidays 24/7. Our partners currently offer loans, credit cards and insurance products. And by the second quarter of this year, they will effectively be able to operate like a branch that can process deposits, withdrawals, cash in, cash out -- and cash in and cash out transactions and bills payment. By becoming another channel for simple banking transactions, our agency banking partner outlets help BPI branches operate more efficiently by reducing the transactional processing load dovetailing nicely with our branch optimization strategy. With regard to our goal of funding leadership, as of December 2023, total deposits stood at PHP 2.3 trillion, up 17.4% from 2021. Growth has been predominantly from time deposits, up 69% as clients shift to higher-yielding products following the increasing interest rate environment. Over the same period, we grew market share in total deposits, though the increase was lagging key peers as we focused on managing our deposit cost by tempering growth in time deposits. Over the last year, we did suffer an erosion in our CASA market share and are well aware that we have not achieved the same level of success in this aspect as we have in other areas of our business. For 2024, we have a renewed focus on further building up our CASA levels through a few key initiatives focusing on things like payroll and high net worth client CASA by focusing on becoming the main operating bank with specific initiatives per segment -- per customer segment. We believe we will grow out our market share with these segments. As a result we expect to grow our CASA ratio in the coming years. In the area of sustainability, guided by its vision of becoming a responsible bank, BPI pursued inclusive, innovative and pioneering banking solutions that champion financial inclusion and sustainable finance, harnessing its strength in digital banking, BPI continued on making -- continued making banking easier and more accessible for Filipinos boosting the bank's client count to 11 million, up 1.7 million year-on-year. 52% of the new clients onboarded were via digital platforms and agency banking. The bank also continued ramping up its financing portfolio for sustainability with PHP 872 billion of the bank's outstanding institutional banking and business banking portfolio in support of the UN SDGs, representing 52% of the total as of year-end 2023. PHP 277 billion in cumulative loan disbursements were made under the bank's Sustainable Development Finance program since 2008, financing renewable energy, energy efficiency, green building and sustainable agricultural projects. PHP 198 billion new agribusiness loans were disbursed for the full year 2023 and PHP 15 billion new micro finance loans were dispersed under BPI BanKo in 2023, serving 213 self-employed microentrepreneurs. Highlighting as well as some other key ESG initiatives of BPI in 2023 we raised our ESG-focused funding, including a USD 250 million IFC green financing deal, which is the largest deal of IFC with the Philippine Bank, a PHP 20.3 billion rise bonds supporting MSMEs and a PHP 10 billion green saver time deposit, the proceeds of which were allocated to projects with clear environmental benefits. BPI BanKo also introduced new products for the under banked segments, including the [ ENI ] app empowering sari-sari storeowners to quickly, easily and conveniently order, manage and pay for their inventory. The micro agri loan rewarding on-time loan repayments, which started as a pilot financing project for a small-scale onion farmers of Jollibee and then the insta cash call line, providing bridge financing for self-employed micro entrepreneurs. And finally, MAX-500, a term loan supporting the expanding operation of self-employed micro entrepreneurs requiring higher loan amounts. BPI financed and arranged ESG-focused deals, including an PHP 11 billion sustainability-linked loan financed with ADB for ASEAN Corporation and a PHP 25 billion green preferred shares also arranged for ASEAN. BPI also furthered its initiatives for responsible operations, shifting 2 of its corporate offices to 100% renewable energy, bringing the total number of these offices to 3. And BPI also had 6 new EDGE certified branches, bringing our total to 11. In 2023, BPI garnered 14 [Technical Difficulty] additions from reputable foreign and local award-giving bodies which surpassed the bank's 10 ESG-focused awards and recognitions in 2022. We've listed them here for your reference. Finally, the BPI and Robinsons Bank merger, we received the necessary approvals to formally merge the 2 banks effective January 1 of this year. Although Robinsons Bank is a relatively smaller bank, its potential to create value to investors is by no means small. We expect the merger to accelerate key growth opportunities through market expansion to include the ecosystem of [Technical Difficulty] summit and Robinsons Retail Holdings and to some extent, to help us expand in the [ Phil Chi ] market as well. The merger allowed BPI to acquire a loan book that has a high exposure in consumer loans and was growing ahead of industry averages. Lastly, the merger will expand the synergies across the products and service platforms, reaching out to more clients and enhancing the customer experience. The full integration will take some time, probably over a year. For now, the Robinsons Bank clients may bank as usual, and their deposits will be backed by the full strength and security of BPI. All RBC employees are now BPI employees, and we made sure that no jobs were lost in the process. RBC platforms and systems will be converted to the BPI brand and technology over time. The RBC Trust operations have been absorbed by BPI Wealth and Legazpi Savings Bank will operate as a subsidiary of BPI. We have a lot on our plates in 2024, but we are confident with the combined research of BPI and Robinsons Bank that BPI will continue to deliver sustained growth and shareholder value creation. Let me stop here and open the floor to questions after we get ourselves set up. Thank you.

Thank you, Eric. While we'll have the chairs set up here in the meantime so that our senior leadership team can answer your questions. May I request them to come up here. Let me start with John-C Syquia our Head of Institutional Banking; Tere Marcial, Head of our Wealth Management Business; Ginbee Go, Head of our Consumer Banking; Eugenio Mercado, Head of our Enterprise Services and Boyie Sarte, our new Executive Vice President, who joins us from Robinsons Bank. [Operator Instructions] Sorry, Jojo Ocampo, our Head of our Mass Retail Products as well will join TG and Eric here in front. Okay. Please take your seats. Before I ask -- we have a few questions from our audience online. But before that, I would like to ask if there are questions here from our guests online. There's some mic over there or we can ask anyone to -- and can we hand the microphones to our leaders, please? Okay. So while those on site are still preparing their questions, let me start with the questions from Aakash of UBS. He says, thanks for the presentation and the opportunity. He has 5 questions here listed. On NIM sensitivity, given higher deposit beta in the late stages of the rate hikes, will the NIM sensitivity on the rate down cycle be lower than average? What will be the impact to NIM per rate cut for the first 4 to 5 rate cuts?

Yes. Let me take a stab at that. My view on cuts and in sensitivity is that actually as the BSP starts cutting rates, that should be marginally positive for us. Deposit rates, particularly time deposit rates will react much quicker. Our duration on our deposits. Our time deposit is up probably 30 days, probably less than 30 days, particularly for the very large items. So those will reprice very quickly, whereas our duration on our large corporate loans probably is on the average of 90 days. So my view is as rate cuts begin to happen, you'll see NIMs expand marginally. And then over -- after the first 90 days, then it should come back to what you're seeing again today. Add some that...

No, I think that's why...

Okay. The second question is on loan growth. What drove it in quarter 4? How much was seasonality driven? And what will drive it from here in full year 2024.

Maybe here, I'll ask first John-C to talk about the loan growth in the fourth quarter for corporate because we saw a good bump there. And then maybe ask Ginbee to talk a little about what we saw on the consumer side and then finally end up with Jojo on the, I guess, on the unsecured lending cards and personal loans. Because I'm also reading some of the questions ahead of time already. They can answer it.

Yes, we aren't plugged on, you are TG. Good afternoon. So I'll do the start, but they are quite interlinked as you would all know, at least most of you in the audience are in the research discipline. So definitely, it's been -- it's connected. I think those who attended the prior earnings call that we had. I did say that we would expect inventory buildup in the end of the year, the last quarter for the typical year-end banner year-end growth in consumption. And what happened this year is actually probably happened a bit later than we would see as usual. There's always a tug of war between who stretches working capital and was more leveraged to stretch the working capital cycle. Of course, the bigger operators do have that either on the supply or demand side. So that's what we saw towards day and well, maybe the stretch in inventory management was still done between suppliers and the distributors. In the end, either would have had to borrow from the banking system. And that's what we saw. And what we're hoping with the strong growth in consumer -- and in fact, in the longer-term part, which Ginbee will talk about, which is more on the capital investment side, which are homes and the bigger ticket items, that will feed our growth more for 2020 quarter.

On the consumer side, we've seen very strong growth on the auto loans and housing loans in the fourth quarter, primarily driven by latent demand. I believe that a lot of the customers now are foreseeing that they can afford, I think with the customer confidence improving, particularly since unemployment rate had come down. We've seen greater confidence also from the developers and our partner dealers and brokers; such that loan releases have been very strong in the fourth quarter. So that's on the consumer, both auto and housing side. And I believe the demand also coming from the frontline's branch releases have been also very strong, primarily driven by our lending programs that had been very effective in improving accessibility to a greater number of our customers. And third would be new products that we had introduced that made lending more affordable, particularly with [indiscernible] going after the core mass market, bringing down amortization, monthly amortization through longer tenures. Those are the drivers of our loan growth. [indiscernible] On the fourth quarter, yes, there is a degree of seasonality on the card spending side. As you know, they spend for the Christmas season. And likewise, on the microfinance side, because we lend to small businesses as they build the inventory for the fourth quarter. However, the large portion of it really is the result of our very aggressive acquisition efforts, which are driven mainly by strong card switch programs and the efforts at what we call universe expansion, which is democratizing access to our loan products, making it easier by having more prequalified programs. In 2024, we expect that loan growth on the unsecured side will continue to be strong double digit, although, of course, on the credit card side, not quite as strong also because the last 2 years were driven by revenge spending coming out of the pandemic.

And finally, I think the sentiment going forward, while I -- in the third quarter results, I was a little bit down because our numbers, loan growth was a little bit muted in third quarter. Seeing what I saw in the fourth quarter and the first 3 weeks of the year in our [indiscernible] we should have very strong loan growth in the first half of the year. The corporates are back. I think sentiment has come back quite, quite well. In fact, we had 3 transactions that we were trying to close at year-end that just supposedly are slipping into the first quarter. So I think there's some positivity here and some enthusiasm on our side on loan growth.

Okay. The third question is on micro loans. Are you able to give more details what yields and NIMs, what NPLs loan as a percentage of target for full year 2025? And how big is the portfolio as a percentage of the balance sheet.

Okay. On micro finance loans to clarify, we actually -- these are small business loans to micro entrepreneurs. At the moment, we do -- our outstanding balance is at PHP 9 billion, which has grown by 44% versus the prior year. We have -- our client base is about 280,000 new clients whom we have lent loans to. Our yields are at 45%. NPLs for micro finance is very strict. They are measured at 10 days past due. At 10 days past due, our NPLs are at 11%. However, at 90 days past due, they are at about 6%, which is consistent with our -- the NPLs of the other of like SME loans.

Thank you, Jo. The next question is on cost growth. In full year 2024, would this be similar to full year '23 level at 19% to 20%.

Yes. So we do expect cost growth in 2024 to modulate compared to our 2023 level. But I do recognize that as the business continues to expand, we also expect operating expenses to expand with it. Something along the levels of about mid-teens is probably reasonable for us to expect.

I think just to put perspective into that, we do come up with a budget as to where we think OpEx is, but we're very cognizant of the fact that much of our revenues is also driven by our spend in advertising and marketing and some technology. So we just watch our growth in revenues versus our growth in OpEx. I'm just very conscious that for as long as we can deliver positive jaws we wouldn't necessarily mind having OpEx go a little past what we had budgeted.

Okay. Thanks, TG. We have 2 related questions on ROE. First, from Aakash who's asking, what's our medium-term ROE targets once rates start to normalize downwards and settle what needs to happen to hit that target? Yong Hong of Citi, also on ROE is asking, considering BSP rate cuts, and if there's any mitigation from fees or OpEx optimization on the impact ROE? So where will ROE be in 2024?

Let me start with that. I think hard to just give out and say where we want ROE to be in 2024 because that will be telegraphic what our budget is. But I think suffice to say that our ROE for 2023 of 15.35% is a remarkable achievement that's higher than what we had thought it would be. But I think going forward, we continue to aim to increase this ROE to a level higher. And mathematically, that works if we have a 40% payout, then all we have to do is grow our earnings by 9% over the previous years. Certainly, I think our goal is to grow our earnings faster than 9%, which is 15% times the [Technical Difficulty] 60%. So -- ROE going forward? Judicious in our use of capital, we will be looking at returning more capital this year to take our capital levels down. In fact, I think for this year, our capital ratio actually increased. Yes, it did increase in 2023 when it was supposed to go down. So gives us room to pay out more.

You want to?

Yes. Maybe just add a couple of thoughts to that. I think Yong Hong does identify important -- a couple of important points that help us profitability for the year. One is that the potential for -- sorry, sorry, this wasn't on his follow-up. But anyway, there is the potential for rates for the reserve requirements to come down and that will boost NIM and as well the fact that we will continue to grow our consumer book more aggressively [Technical Difficulty] against lower -- the lower interest rate environment. And that should allow us to keep our NIMs fairly stable through the course of the year. And then as TG mentioned, we will continue to monitor our costs to make sure that we are spending efficiently as -- through the course of this year. And those will be some of the measures that we're going to be implementing in order to try and continue to push our ROE upwards.

Okay. Thank you, Eric. We have 2 questions from Rachelleen Rodriguez of MKE. One, how many of RBC branches are you keeping? And second, can you comment regarding the increase in trust fees. Is this something clients are welcoming?

I think we continue to look at the Robinsons branches, look at where they overlap with BPI branches. We look at where there is a better location in some locations, the Robinsons branch has a better location, in many areas the Robinsons branch is present, where we're not. So we're doing that study now. Suffice to say, that's part of our rationalization process. We do have -- and I'll let Tere handle this, but we did make a decision to raise our trust fees on our mutual funds -- Tere, why -- mutual fund scenario UITFs. Tere why don't you talk a little about that?

Yes, we announced increase in trust fees for our UITFs and mutual funds effective Feb 1. And that's part of the regular review of the cost structure and the pricing of our products. We deem that it is important as we continue to invest in operational efficiency as well as technology investments in delivering our UITFs and mutual funds to the broader public. In terms of reaction of the market, we have really been monitoring, especially social media posts. And so far, based on our assessment, what we're seeing in social media is a relatively low risk in terms of impact. We're also monitoring net flows on our mutual funds and UITFs. And so far, we're not seeing any negative flows. In fact, for the last 3, 4 consecutive months, we have been seeing a reversal. We've seen a reversal in terms of flows, which is really more a function of improvement in market as opposed to what we have seen in the past 12 months because of higher interest rates and lackluster performance in equity markets, we continue to see net outflows. But in the last 4 months, we have been continuing to see net inflows. Lastly and importantly, part of our delivery of products is we continue to show more channels and increase the ability of more people to invest in our UITFs and mutual funds. We have made available the ability to open an investment account digitally. And as we have seen in the last 12 months, we are opening an average of 20 accounts per day, and this has not abated despite the increase in fees. We've also reduced the minimum investment amount that allows more access to more people to our investment products. And this is still part of our continuing initiatives to improve delivery investments in our operational processes to make investments available to more people.

Our view is that really the ability to attract investors into investment funds is not necessarily -- it's not driven by the fees you're charging but by the net performance of the funds. And happy to say that at the wealth side, we have been really trying to democratize the product. We've been making it easier to open accounts or we're lowering required amounts, initial balances. And the results speak for themselves. Last year, the wealth business, AUM grew, Tere?

We grew by 19% in revenue and 14% -- 14%, 15% in AUM. Our BPI Wealth Trust Corporation, which reported an AUM of PHP 1.24 trillion is gaining market share. In fact, for the first 9 months of last year, we showed an increase in market share of over 300 basis points from about 16% to over 19% market share in the trust industry.

Okay. Thanks, Tere. Can I check anyone here in the audience who would like to ask a question? [ Beyay ] go ahead.

Beyay here from JPMorgan. First, just a more broad question, I guess, going into this year, TG and team, what are your thoughts on the outlook? 3 things I'm interested in, specifically, one, loan growth, what kind of number are you looking at? Can we get to mid-teens? Noninterest income, how are you thinking for this year? As well as credit cost, can you sustain last year's level of around 20-odd basis points?

Okay. In terms of -- overall, I think you start off with expectations for loan growth. Currently, our expectation for loan growth is that it will be stronger than it was in 2023, but maybe not quite to the level of 2021. So 2023 was at 10% -- just over 10% and 2020 -- sorry, 2022, which was at 14.9%. So we think it will come somewhere in between there in the -- probably in the low double-digit range. So to expect mid-teens, I think, is probably a little more aggressive than what we expect. But of course, we'll see how the year evolves, right? And those expectations are given GDP growth kind of in that 6 -- in the mid [Technical Difficulty] potential to overshoot in that respect. With regard to NIMs, I think your -- the second question was on NIM, sorry. Noninterest income. On noninterest income, I think if you look again, as we pointed out, the one-off aside, if we strip off the one-off from last year, we actually saw good growth in our noninterest income. And we believe that -- I mean -- so there's reason for us to believe that, that kind of growth will continue moving forward. I think the drivers continue to be there. And so we're optimistic that we will be able to carry that momentum forward into the year. And then--

Credit costs.

Credit cost. So credit cost, we think -- so last year, our credit costs were quite low, again, because we believe that we had -- or we had probably over-provisioned and in discussion with our auditors who felt that we were over provisioning we did decide to bring down those credit costs or provisioning levels, and therefore our credit costs came down. Moving forward, we expect this to normalize somewhat. But we -- at the same time, we're not really expecting any blowout with regard to credit. So we think that even at the current levels, we're probably quite conservatively provisioned, but we do think that it will maybe move up a little. Credit cost this year will maybe move up a little. Let me just put some color there, Dino. I think one of the things that we watch out in the credit cost is also the sentiment of the market. I mean if you go back to 2019, I am just reviewing some numbers, at the end of 2019, NPLs were about the same level. And NPL cover was 100%, right? And so today, we're here staring at 155% NPL cover, but that's the sentiment because everyone else is around that level. And if you look at it rather clinically, if you look at the [ ECL ] models, you could say we're still over provisioned today. But I think you need to look at what the competitors are doing and what people are saying. So we're erring, if ever, on the side of being conservative, that's why Eric talks about slightly higher credit costs here. But from my perspective, we are still over provisioned -- because they're still collateral, right -- the cover is just provision covered, you don't have collateral there yet. And then number 2, on the noninterest income. I think I'll give you more color where the tailwinds are coming from where we think will continue to be very strong this year. However, I talked about raising the fees on AUM -- sorry, raising the fees on the funds. Trust business contributes about 16% of our noninterest income. The card business contributes about 36% of noninterest income. We continue to see that growing strongly. We are also seeing very strong traction in our digital channels. I think that was up 18% this year. We have already announced that we are no longer giving the special on fees [indiscernible] transfers for under 1,000 beginning March 1. And there's a reason not because -- there's a reason for that because we're trying to propel people to use our own apps. So there are things we are also doing on raising the revenue stream going forward on top of the natural, I think, momentum that we have on those businesses.

Just a follow-up on the growth side. Could you just break up on corporate consumer, what you guys are thinking of going into this year as well?

Okay. Well, I'll ask John-C. to talk about where he sees corporate growth coming from because he is about 70% of the book. And maybe he'll talk a little about what areas we might see that growth coming from, including the airport deal. And then Ginbee can give you some of the -- on the mortgage, I guess, on [indiscernible].

So thanks for the questions, TG. Yes. So since TG is tied up, we do see our pipeline on the CapEx transactions being there. There's a real lag from what could have been done last year versus what might be done this year. So that -- on the CapEx front, there's obviously the infrastructure, which includes not only airport, the airport but airports and also seaports for increasing the throughput of hard goods that come in and out of that country. We're also seeing more infra in the road network space that we hope to be able to capitalize on this year. Mass transport is not something I expect to happen this year, but I think there's a lot already of preparation going on in that space. The area which I hold for last that we all need to think about is the power sector for us to fuel the growth of the different sectors you have to talk about. We need to put a power capacity. We have to put power capacity in perspective. So the space I am talking about is like data center and the other expansion of telecoms, or data highways. So that part hinges on the ability to grow our power capacity and doing so without necessarily going to coal again. So that space we're staying close to. In fact for last year the people on the call might not hear if I take the mic off, for last year, there was already a delay in some of the privatization tractions. There's going to be -- we are hoping the -- a big one that's coming this year in that space. So that's for infra. We see some decline in areas that over expanded in the last 2 years, but there's going to be more growth, I think, related to the consumer space that both Ginbee and Jojo already talked about. So when I talk about the tension or the push and pull between suppliers, we expect this year to play a role in being the intermediary there so that the pressure point is not between suppliers and the distributors, but the bank staving that off and therefore being the facilitator for growth. So in the supply chain and working capital space, we expect to -- to do more also in lending. And that's, I think, good potential. And that gives me the chance to also refer to what we're expecting to do more with the Boyie's team from -- which is from our bank. We have to capitalize on that ecosystem that Eric talked about in the last 2 slides.

Let me talk about the consumer business because it's something that's very exciting. And I believe that BPI is very well poised to capture the opportunities that are very much available given the macroeconomic variables that are positive, unemployment rate, going -- inflation rate that's coming down. And you've seen the performance of the consumer business across the different products, which are up. You've seen our aggressive acquisition, customer base growth, as Eric reported, we now have 11 million coming from 9.3 million, which means that we grew by 1.7 million. We've been growing our customer base very aggressively in the past 2 years. And that's really because of our focus on being very client first in our transformation. Some have been very skeptical about our branch rationalization and optimization and questioning our ability to deliver on digitalization. But I believe that is no longer in question. We've been able to maximize our ability to transform both on the physical side and on the digital side, and we're very happy to report. ut on the physical side, you can see the branch network really pulling its weight with the level of cross-selling efforts. And you've seen that in the loan growth. The unbelievably high consumer loan growth across products is really primarily driven by our very strong channels on the branch side, doing a lot of cross-selling because they've been able to migrate more and more customers into the digital space. You've seen the growth of our digital customers. Our digital enrollment is now up at 6.6 million. We now have 4.4 million customers out of the 6 million who are using us every 3 months. On a monthly basis, that's about 3.7 million monthly active users. That means that we're able to migrate more and more of the servicing transactions out of the branches. So we can have more time doing cross-selling. You've seen the upgrades and enhancements in our physical branches. That would only bring more and more of our more affluent customers coming to the branch so that they can get trusted financial advice. And with the products and breadth of products that we have on the wealth management side that Tere talked about, we are so encouraged that we can further deepen relationships, increase total funds. And not just total deposits, but even off-books investments, which means that we can holistically provide that advice and improve the stickiness. So it's really no wonder that we've been able to increase our NPS and become the market leader in terms of NPS. That is a leading indicator of how well we'll grow the consumer business in 2024. Thank you.

Just last one for me on the RBank transaction. Any costs -- one-off costs that we should be worried about? And on the revenue synergy side, anything that can offset those costs?

Yes. So on the cost side, we do anticipate obviously integration costs that will be incurred in the process of bringing the 2 banks together. To be honest, in the immediate term, those costs are not likely to be offset by the additional revenue that comes in because it does take a bit of time to build up that revenue. But over the longer term, we do expect it to yield a lot of benefits that will clearly outpace the cost incurred. And then obviously, we wouldn't have done this transaction if we didn't believe that. But I think as John-C alluded to and I think I mentioned as well during our -- the earlier during my presentation was that kind of tapping into the ecosystem of the [ JG ] and Robinsons retail groups will allow us to manage that. If you look at those -- that group -- those groups, the companies within that group are all very large with large supply networks. And therefore, I think there's a lot of opportunity to broaden what we're doing with them. And then obviously, in the later years, as the system integrations are done, we'll be able to streamline some of that branch count as well.

Maybe the best way to also address that, right? So there are -- there will be one cost, for example, the one the big thing that comes to mind is they're carving out their network from the JG network, putting in ours. But as Eric said, there are positive gains to be made from this. And one of -- maybe I'll ask Boyie to talk a little about -- see Boyie is on board with us, part of the team today, one of his biggest responsibilities is to ensure that we get as much of the JG and [ Gokona ] business. That wasn't with Robinsons because of Robinsons small size, small scale. But with the [indiscernible] balance sheet behind him, Boyie and I are very confident together with John-C that we'll get more and more of the business. And maybe that's one -- that's one of the things he's helping me on so much other stuff, but the Gokona relationship is the key one for us.

Yes. Thank you, TG. I think in Robinsons Bank, if you know our history, one of the success that we have done is we are able to capture the ecosystem. For example, all employees of the group, the payroll is already with Robinsons now. All payments to suppliers are paid out of Robinsons Bank. Everyone is required to have an account with us. And with that, auxiliary business came about, like we did a digital personal loan for the -- over 30,000 employees that are paid through our [ Insta bale ] which we're bringing for to BPI. Supply chain is something -- supply chain financing is something that we have introduced. But at the very early stage, we're hoping John-C can expand that further because one opportunity that I've always wanted to do is expand our exposure to the various suppliers and with the network of BPI today, I think we can tap that more. So that's, I think, one of the value of the merger aside from the other things that we have some consumer businesses that are new to BPI, which will be personal -- other teachers loan, the motorcycle loans and hopefully, we can expand that further also.

We have talked about the teacher loans that were only resident with the Legazpi Savings that because of Legazpi Savings small balance sheet, it was basically a loan book of PHP 4 billion, right? When the biggest player is at PHP 80 billion. Right, so Jojo's goal is to be the biggest player.

Yes, we're very excited about the teachers loans, which Legazpi Savings Bank, a subsidiary of Robinsons Bank has -- is one of the accredited banks by the Department of Education to offer. Teachers loans is actually a very big market. It's about PHP 500 billion in total size. And today, Legazpi Savings Bank has about, a little over 1.5% to 2% share. Clearly, if we maximize the touch points offered by the Robinsons Bank branches, the BPI branch, bank branches as well as the BanKo branches, we hope to grow our share very substantially. So that as well as motorcycle loans, as Boyie mentioned, there are clearly new, what, categories, which BPI has not yet tapped, but is now available because of this merger.

Thank you, Jo. We have a question from [ Shane Mathews ]. Can you give any updates on how you're viewing the PHP 50 million customer target? Can you remind us by when you aim to achieve it and any challenges or slowness in achieving these targets?

What was the first part?

Updates on how you view the --

How we view?

-- update of the PHP 50 million.

I think we've not been shy about saying that PHP 50 million is a big bold audacious goal that we have set out. We -- I've been very open to say that if we had set it at PHP 15 million, my team would have said, yes now we can do that. We all agree that PHP 50 million is a challenge. It's something that we continue to work at to remind people and to keep ourselves honest. The goal was by the end of 2026. So we are 3 years away from that. There are challenges to that, but I think it's challenges that we can overcome. What we have spent the last 1.5 years doing is building a foundation to be able to serve those customers properly and to onboard them with the lowest cost. So we've worked on our customer obsession with major customer service works. We're working on our digital platforms, and now we can onboard on our mobile app very quickly. With 5 minutes, we have developed our wallet, which is for the very low end. We're working on our BanKo project. So all across, we have now offset the platform for acquiring those customers. We've set up arrangements, acquisition arrangements with GCash for both our GSave, GInvest, GInsurance, and so we have set all those platforms in place. So the goal this year is to focus to now begin to push customers through it. So let me remind people that in 2021, we had 8 million customers. We're up 3 million in 2 years or yes, 2 years. And so I think we have the momentum now. Is it a slam dunk. No, it's not a slam dunk. It is a challenge, but I think the team is poised to get to it.

Thank you, TG. We'll take a question from Melissa Kuang of Goldman Sachs.

Maybe just moving on to your funding costs.

Melissa, can you state your question again, please?

Perhaps we'll talk a little bit on the funding cost side. In terms of CASA that we've seen CASA dropped, you mentioned earlier that 2024, you will look to refocus back on growing CASA. Can you walk us through what strategies you have to do that? And also, are you still seeing outflows of CASA to TD at this point in time in January? And then following on to that on to NIMs, how do you see funding cost this year? What are you expecting for rate cuts? And perhaps maybe you can give us some NIM guidance would be great. That will be my first question. And perhaps I just go quickly on my second question. In terms of OpEx, you mentioned mid-teens kind of OpEx growth. Is that right that I heard? Are you expecting cost income ratios to stay stable or rise? Just wanted to hear your expectations on that. And in terms of OpEx, where are we needing the growth for, how is digitalization playing a part in terms of winning in your OpEx?

Yes, I'll ask Eric at the end to answer the OpEx questions, and then Ginbee will talk about the things we're trying to do on the CASA side. But let me remind again that in 2019, when rates were significantly about these times, our CASA ratio was at about 69%. So it's natural that when rates are low and it's the spread between CASA and TD is low, that you'll have CASA rates going -- CASA ratios going up and as that spread widen you will have CASA ratios going down. But let me ask Ginbee to talk about some of the things that we're doing this year to try to improve our CASA market share.

Well, thank you for that question. CASA is a very core product of the bank. And we know how important it is in delivering the very basic banking services. And that's why CASA will remain to be the anchor of our unit bank strategy. How we're going to drive this is primarily to make BPI the main operating bank of our customers, and Eric talked about that earlier. But to be able to do that, we need to have a segmented strategy approach. How we are a main operating bank for the institutional accounts will be different from how we will be a main operating bank or the preferred bank of the consumer or retail customers. John-C and I are very deliberate in our pursuit to improve our CASA levels and CASA ratios by working more closely together. Our first primary initiative is really to go after payroll. Our payroll will be supported by the ability of both institutional banking, RMs and consumer banking RMs and branches to go after new payroll corporate accounts. The second is on the consumer side. We're going to build up our high-value clients by deepening the relationship and improving the utility value of our CASA through payments. Similarly, for our low salary, low-income core mass base, we will continue to acquire more and more core mass market clients through our deposit offering. And interestingly, our core mass and our OF segment and our mid-market, 95% of their deposit holdings are CASA. So these are really good sources of CASA. On the bills payment side, this is the other initiative that we would want to be able to put forward more deliberate. Again I believe Boyie is chairing our payments council. And this is going to be another synergy effort for the entire unit bank to really deliver our CASA aspirations.

Yes. So as I did mention, we expect OpEx growth kind of in the mid-teens for 2024. But in spite of that, we think that cost income ratio can continue to move downwards as well as our revenue grows at a pace that's higher than that of our cost, which is -- continues to be the goal that we shoot for. I think there is going to be some additional attention to managing cost and cost efficiency. But in spite of that, obviously, with the growing volumes, that's going to be one growth driver. And we continue to want to invest in the business moving forward. So those 2 things will continue to drive some amount of cost growth. But again, we expect base line revenue.

Eric, there are questions related to OpEx. One is on IT spend. What do we look at -- what are we looking at in terms of IT spend? When do we expect to reach our cost-to-income ratio target of sub-50% or closer to 46%? Will we be able to do it by 2026? And finally, can you comment on the fixed and variable nature of OpEx on a 2- to 3-year horizon?

Yes. So on the first one, with regard to the IT spend, I think IT spend, we're probably looking at that continuing to grow more or less in line with that kind of mid-teens growth that I had mentioned. So that should be fairly consistent -- and then on -- with regard to the cost-to-income ratio, you mentioned this 46% number. That is a goal that we would like to hit. If you look at over the last 2 years, right, from '21 to '22 and then from '22 to '23, over these couple of years, we have been improving on a BAU basis, meaning I strip out the one-offs from those years. If you look at those years, we've been improving our cost-to-income ratio at about 1 percentage point per year. We would like to continue to show that kind of cost-to-income improvement. That puts us maybe a little outside of the 46%. But obviously, we're going to continue to try to push on that respect. That will continue to be our fighting target.

Okay. Thank you, Eric. There are a couple of questions on our securities book. What's the average duration in yield? And any color on trading gains for 2024? And is it sustainable or more of a one-off in nature? Maybe we can call on Dino, our Treasurer, Dino, can you respond to that? There is a mic over there.

Thank you for the question. Duration of FVOCI, I think we have the 2023 with the duration of about -- I think it's close to about 3.5 years. Trading opportunities, for sure. I think there will be some maybe coming in later in the year, given the expectation that rate cuts will probably be back ended for 2024. So there will be opportunities maybe later in the year though.

Okay. Thanks, Dino.

Thank you.

On the corporate side, the delayed infra projects have these been baked into your 10% to 12% growth outlook? Is this also inclusive of Robinsons Bank? On loan growth, the 10% to 12% outlook, does this include the delay in infra projects. Is this organic? And is it inclusive of one?

So I think in terms of the overall loan growth, it's our projection of what we expect this year to be, right? So whether there are delays in intra or their delays and infra are not always unexpected. So it does happen. And so given our outlook for the year, this is what we expect, and it's inclusive of everything that we've factored in -- through the course of the year. I mean we expect to come through the course of the year. Of course, if the year -- if growth turns out better or worse, then obviously, that's going to affect our growth as well.

Okay. There are a couple of questions, I'm just combining these, on asset quality. Do we have a target on NPL levels? And how is the credit quality in Robinsons Bank shaping up in the run up to the merger? And how will this affect our -- or BPI's credit quality portfolio.

Yes. So from a -- where do we expect NPLs to be? We ended the year, as I mentioned, at 1.84%. This has kind of been gradually creeping up through the course of the year, but very gradually. And we expect that trend. We don't expect that trend to deteriorate significantly moving forward, meaning that we could potentially see -- continue to see a slight uptick in NPLs before they start to get better, but we don't really see them blowing out. There's nothing on the horizon that leads us to believe that our book is under any kind of threat from that perspective. And therefore, again, we believe that our provisioning level will cover us more than adequately, and that integrates as well our viewpoint with regards to the Robinsons Bank portfolio as well. It's a small portfolio. Their NPL levels were a little worse than ours, but it's not going to move the book very significantly. So we think it's all under -- fairly well controlled.

Any questions from the floor? Here, on site. Okay. If none, we'll take a question from [ Angelo Danino ]. If none, okay. Karthik Chellappa, can you go ahead with your question?

So I have 3 questions, so I'll probably take it one by one. The first question is out of your total loan customers, how many of them are yet to open a CASA account with you?

How many of our loan accounts are yet to open a CASA? 0. They have to open the CASA with us.

So basically, the cross-sell from loan to deposit right now is almost 100%, right? That's the way we should understand it.

Yes, yes.

The second question is when you look at the CASA growth for the system for 2024, what is your forecast for the CASA growth for the system as a whole.

It's usually in line with M3 growth, which is about 8% to 9%.

The reason I asked this because I think this year, the CASA growth has been a bit challenged. So if next year, it does grow in line with M3, is our base case that we should be growing at least in double digits?

It's the -- total deposits growing at M3. For the CASA again, it has been largely affected by the movements in interest rates as TG mentioned earlier, because of the significant rise in interest rates the past year, then you see a lot of the deposit, which used to be in CASA moving to more deposits. And that's why they shifted. It's natural, particularly in the affluent and in the institutional banking segment. Next year, will it remain to be the same? I think it would generally be the same, but that's why we would want to deliberately address the opportunities in terms of driving CASA through very segmented initiatives, payroll, focus on payments and of course, our portfolio actions, particularly on the core mass market, bringing in more customers, bringing in also additional functionalities enhancements in our CASA products so that the higher end of our depositor base would keep their CASA with us rather than move out.

My last question is on the microfinance book. I don't know whether you actually track this separately, but what would be the loan-to-deposit ratio on your microfinance book currently?

Yes, it's tracked separately because it is a bank subsidiary. So our loan-to-deposit ratio would be approximately for the institution because there are other loans in the institution BanKo other than micro finance. So our loan-to-deposit ratios would be 80%.

We have a question from [ Ben Jementa ]. What is the NIM guidance for 2024 given the BSP rate cuts and the RRR cuts, if any?

Yes. I think as I think TG mentioned -- may have mentioned earlier -- the immediate effect of a rate cut has a tendency to bring down the funding cost, our cost of funds before it starts to bring down the cost of our -- or our interest -- our loan yields. And that's because our -- many of our term deposits or time deposits are on very short terms, which means that it reacts more quickly to interest rate rises or reductions. And so the immediate effect of that will be for it to kind of dip downwards. But then eventually, because the amount of variable priced loans is higher than that of the variable price deposits. The loans will catch up and they'll start to bring it down. But due to the lag effect, it should be more like if the rate increases -- or sorry, if rate reductions start in the second half of the year, then the real impact to NIMs, the real negative impact to NIMs should only start to really take effect more in 2025, very, very tail end of 2024 into '25. And then that means that our NIM levels through the course of 2024 should be and should remain fairly stable throughout. And that also doesn't count the fact that we continue to push the consumer loan growth, which should be positive for NIM.

Okay. Thank you, Eric. There's a question from Yang Hong, should we get excited with agency banking to contribute to consumer loans mix contributing to the 30% mix to the loan portfolio coming from agency banking.

I think the excitement from agency banking is the fact that it's what I would call the third channel for our business. We obviously have the traditional branches channel, and then we have the digital channels. The agency channel is a channel by which we're using other people's doors and other people's people to acquire customers and to service our customers. And I think that's where we are making a big push in terms of initially our acquisition. So today, we have close to 5,000 doors where people can actually onboard themselves onto our products. And by -- hopefully, by the second quarter of this year, these same doors will be able to do transactions for our customers such as cash in and cash out. So the agency channel is a way to acquire customers and to service our customers outside of the branches. In many cases, the purpose of that is twofold. One, many of the lower-end customers are reluctant to come into our branches or may not have the confidence to do a digital transaction by themselves. So that is the purpose of our agent who is trained to onboard them using the digital channel and to guide them to the process. Secondly, as we gain more and more customers, we obviously don't want them coming into the branches and clogging our branches. And therefore, they either do it on a digital transaction or they can go to our agents for cash in and cash out and even things such as bill payments. So we are using the agency channel to, I guess, to add to our capacity going forward. And don't forget that our digital -- our agency team is not only focused on physical partners but also digital partners. And so that's why I am personally excited about the efforts we're making with agency banking.

Thank you, TG. We'd like to check one last time with our guests here on site, if you have any more questions. I think we've answered most of the questions.

I do want to ask a couple of words from Gene to address some of the issues that we have had in terms of our ability to onboard customers on the operation side and to do operations both digitally and obviously, the traditional way we do it, which is not so digitally, but Gene, as Head of Operations, is also leading a whole new process in terms of putting robotics process automation into the bank, and that's going to be key to keeping our costs down and our ability to service more customers and more transactions going forward, Gene.

Thanks, TG. I just wanted to mention that in spite of the increase of our OpEx, we were able to reduce significantly our unit transaction processing costs. This is because of our implementation of implementation of our robotics process automation projects. In 2023, we implemented 17 [ RPA ] projects, which allowed us to reduce our headcount by as much as [indiscernible] 80 plus. And in 2024, we plan to -- in our pipeline, we already have about 25 in our pipeline in to process our transactions via RPA. In fact, in all our digital onboarding, we had to make sure that when you do digital onboarding, you also automate the backroom processes. So that's basically what we do in order to reduce the cost in onboarding house.

Okay. Thank you, Gene. With that, I think that's all for questions. Thank you, everyone, for your questions. We at BPI, I always welcome your feedback and take them into careful consideration. Before we end the call, may we ask TG for some final thoughts.

First of all, thanks very much to everyone who's come here physically today to join us and everyone who's joined us remotely to also participate in this briefing to my colleagues who are here. Let me first say personally that I am as excited today as I was in 2021 at the time about the prospects that we're facing going forward. I think there is a renewed confidence in the domestic economy. The lethargy of 2023, I think, is something that's passed. We're seeing it in the interest that we're getting from clients. We're seeing it in the kinds of transactions we're beginning to look at. And we're beginning to see it in our team as we ramp up some of the new initiatives that we're geared for in 2024. Certainly, there are some headwinds as we look obviously, as the rate cycle turns against the bank, we will have to face that, and we are facing that by growing our book becoming more aggressive and focusing on noninterest income, basically looking at the fees. We remain committed to our goal of acquiring more customers making BPI, a bank that is focused on a broader segment of the population. And we will do this by continuing our focus on customer session as well as our digital process. We are -- we here, we are focused also on making sure that our costs grow reasonably and lower than our revenues. We're always a big believer in Basel jaws. We will continue to look at efficient use of our capital and we look at returning capital that's [indiscernible]. With that, maybe I'll close there. my colleagues, and thank you, Chinky for arranging this.

Thank you, TG and Eric and the BPI leadership team. Ladies and gentlemen, this concludes today's earnings call. For those online, thank you, and you may now disconnect. For those on site, we have some refreshments here for you to enjoy. Thank you very much.