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

Okay, everyone. It's 4:01. Let's start. Good afternoon, ladies and gentlemen, and welcome to our earnings call to discuss BPI's Results for the First Quarter of 2024. I am Chinky Lukban, your moderator for this session. We are conducting this in a hybrid manner. Our BPI speakers and panelists are in our headquarters here at Ayala Triangle Gardens 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 CFO and our Chief Sustainability Officer. They will be joined in panel during the Q&A session by Ginbee Go, our Head of Consumer Banking; Jojo Ocampo, our Head of Mass Retail Products; Gene Mercado, our Head of Enterprise Services; [indiscernible], our Head of Integration and Co-Chair of the Payments Council; Theresa Marcial, Head of our Private Wealth business, will follow a little bit later. The rest of the BPI leadership team are also joining us, some on-site and some in the call. This afternoon's agenda will begin with the opening remarks from our President, TG Limcaoco, followed by our CFO, Eric Luchangco, who will walk you through the first quarter's performance highlights, digital and sustainability updates as well. The floor will be then open to questions from the audience, both on site and virtually. This call 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 a warm welcome to all our guests here at Ayala Triangle Gardens Tower 2 as well as all those joining us virtually via Zoom. My pleasure again to welcome you to our first quarter 2024 earnings call. As we disclosed in our report yesterday, the first quarter of 2024 recorded very healthy profits for the bank, a total amount of PHP 15.27 billion for the quarter. That's significantly higher than last year and about 18% higher than last year's earnings per share, which allows us to take into consideration the dilution created by the merger with Robinsons Bank, which we closed on January 1 of this year. Today, my friend and our CFO, Eric Luchangco, will talk about our financial reports and our financial results. He will highlight a couple of items, the fact that our revenues continue to grow very strongly, driven by strong loan growth as well as expanding net interest margins as well as strong fee income arising from our digitalization strategy. This was, however, tempered by rising operating expenses. But as he will point out, our revenue growth at 24.5%, far outstripped the OpEx growth at 19.5%. We continue to provision quite conservatively. We provisioned PHP 1.5 billion for the quarter. Our NPL ratio rose slightly higher due to a larger consumer share of our loan book, which also delivered significantly higher margins. And we will -- and Eric will speak at length about that performance. Towards the end, we will also give you updates on our digitalization and sustainability activities as these 2 are key to our strategy fulfillment of reaching our PHP 50 million target by 2026. So without further ado, and I thank my colleagues for joining us here today, let me turn this over to Eric for his presentation. Thank you.

Yes. So good afternoon, and thanks TG for that. And again, thanks to everybody joining us here for our quarterly update. As you know, since we released our highlights yesterday, we had a very strong start to the year and it was underpinned by broad-based growth, carrying forward the momentum that we saw at the tail end of last year. This is also the first quarter that integrates the figures from Robinsons Bank, and we will call out the impact of that where we see it as relevant. For the first quarter, as TG mentioned, we generated a profit of PHP 15.3 billion in after-tax earnings. This is a new recordly quarter -- record quarterly profit for the bank and is up 17% on the sequential quarter and 26% higher year-on-year. This is on the back of strong revenues. Return on equity stood at 15.7% and ROA at 2.02%. We further strengthened our balance sheet with loans and deposit growth at 18.7% and 12.8% respectively. These figures include growth from the merger with RBC. But even excluding this, our organic loan and deposit growth continued to be strong at 11.9% and 6% respectively. Our capital position remained robust with CET1 ratio at 14.7%, indicating sufficient buffer for our future loan growth and investments in our strategic initiatives. Asset quality remains well managed and at a comfortable level. The uptick in the NPL ratio is a natural consequence of our deliberate strategy to expand the consumer loan book. Meanwhile, our NPL cover remained sufficient at 136%. We expanded our client base, reaching 12 million customers and increased our client engagements. We continue to deliver on our digital agenda with the release of the new BPI Wealth Online app and added features into our existing platforms to enhance customer engagement and conversion rates. The 26% increase in our net income to reach PHP 15.3 billion is driven mainly by growth in revenues. Net interest income of PHP 29.85 billion is up 24% year-on-year on the basis of loan growth of 18.7% and continued NIM expansion, which was up 25 basis points. Solid trading income generated PHP 1.68 billion, which is up 33%, while strong fee income at PHP 8 billion grew 27% backed by an expansion of the customer base and business volumes. All of these resulted in a 25% growth in revenues to a total of PHP 39.5 billion. Revenue growth more than offset the nearly 20% growth in operating expenses, which were driven mainly by increases in head count, marketing expenses, technology spend and volume-related expenses. Pre-provision operating profit was up 29%. Provisions at PHP 1.5 billion was up -- was 50% higher than the previous year. Compared to the prior quarter, net income increased 17%, driven by higher net interest income and lower operating expenses. Pre-provision operating profit increased 27% to PHP 21.5 billion. OpEx declined 12%, following a 19% increase in the prior quarter due to milestone payments related to tech spend and other year-end related spending. We delivered consistent improvement in returns over the past 4 years with an ROE -- our ROE for the quarter, improving to 15.7% and ROA at 2.02%. As important, earnings per share for the first quarter stood at PHP 2.90 per share, an 18.1% improvement from last year's PHP 2.46 per share, reflecting strong income growth despite the increase in outstanding shares, which arose from the merger with Robinsons Bank effective at the start of this year. We hope this addresses concerns previously raised about potential income dilution from the merger. And since we don't have a slide specifically devoted to the merger, let me just add at this point that the merger has gone very smoothly. Obviously, it has not been without challenges along the way. But on a relative basis, it has been quite a seamless integration with many of the potential benefits still available to be reaped in the coming months and years. Moving to the balance sheet. Total resources stood at PHP 3.1 trillion, up 6% quarter-on-quarter and 14.7% year-on-year. Loans stood at PHP 2.0 trillion, while deposits were at PHP 2.4 trillion, up 18.7% and 12.8% respectively. Excluding the amount of loans and deposits brought by RBC on day 1, loans would still have grown 12% and deposits 6%, reflecting sustained organic growth. CASA ratio has continued to decline, now at 65%, reflecting the trend we see in the market. While loan-to-deposit has -- the loan-to-deposit ratio has improved by -- has improved to 84%, which is up 417 basis points compared to this time last year. The strong momentum in net interest income was driven by higher loan balances and improvements in NIM. Loans grew 18.7% from last year and this growth was maintained throughout the period with average daily balance up 18.5%. Although the loan book typically contracts in the first quarter, the bank reported a 5.2% sequential quarter growth coming in part from the initial contribution of RBC to the bank. NIM continued to increase despite BSP keeping its policy rate unchanged since October of last year. NIM widened 25 basis points year-on-year and 5 basis points quarter-on-quarter to 4.19% as assets were priced at a faster pace than funds. We expect NIM expansion to taper this year. However, the higher loan base should moderate the impact of stabilizing NIM on profitability. As mentioned, the total outstanding gross loans reached PHP 2 trillion with all segments posting strong growth. This was led by personal loans, up 147%; microfinance, up 57%; business bank and SME loans, up 46%. These were followed by strong gains as well in auto loans, which was up 38%; credit cards, up 37%; and mortgage posting growth of 31%. All told, consumer loans grew 38% year-on-year, well outpacing the 13% growth in the institutional loan book. As such, the loan mix continued to shift in favor of consumer loans -- consumer and business banking loans, with those segments now accounting for 25.6% of the total loans, which is up 360 basis points from last year. On asset quality, NPL was up PHP 11 billion or 38%, resulting in an NPL ratio of 2.12% or 28 basis points up from December and 30 basis points up from last year. NPL cover though was -- though down 40 basis points -- 40 percentage points from last year remains comfortably sufficient at 136% as we booked PHP 1.5 billion in additional provisions for the period, equivalent to a credit cost of 30 basis points. NPLs should not be viewed in a vacuum however. And in this case, the increase in the NPL ratio is a natural consequence of our deliberate strategy to grow the high-yield segments of the loan book. The 30% -- the 30 basis point increase in the NPL ratio to 2.12% was mostly contributed by credit cards, mortgage and personal loans. Meanwhile, microfinance and auto loan asset quality remained resilient despite the 57% and 38% year-on-year loan growth respectively. The risk-adjusted margins of these loan segments continue to be high, and we remain confident in our approach to the increase in this exposure as it creates value for the bank even when viewed from a marginal cost basis. Fee income stood at PHP 8 billion, down 2% on the sequential quarter, driven mainly by lower cards and branch service charges. Following the seasonally strong fourth quarter where fee income was up 10% on the prior sequential quarter, compared to the first quarter of last year, fee income grew 27% on strong performance of key businesses led by cards, wealth management and insurance. Cards was up 28.3%, backed by a 19% increase in the active customer base and a 23% increase in retail billings. Wealth management fees were up 26.4%, driven by a 19.5% increase in AUM and an increase in fees on investment funds. Increase in AUM was driven more by net inflows than by asset valuations. Insurance was up 184%, mainly attributable to higher equity income from BPI AIA, but branch commissions also increased 55%. These increases were partly offset by securities and investment banking fees, which were down 69% due to fewer key deals being closed. Moving to operating expenses. Operating expenses stood at PHP 18 billion, down 12% quarter-on-quarter, following a 19% increase on the prior quarter to that, driven by milestone payments and other typical year-end payments. OpEx is up PHP 3 billion or 20% year-on-year with increases in all expense categories, led by manpower, largely on additional head count from the merger and some salary increases. Other expenses, which include marketing and volume-related costs from cards, product insurance, distribution and pin charge for online transactions increased 34%. Technology is up 5% year-on-year, while premises is slightly up 1% as cost of additional branches from the mergers are being reflected in this quarter. Despite the 20% increase in OpEx, cost-to-income ratio declined 2 percentage points from last year to 45.6% on strong revenue generation. We continue to make progress in our efficiency initiatives. Our client base expanded by -- to about 12 million, which is up about 1 million clients from the -- through the course of this first quarter. We served our clients with a reduced BPI branch footprint, although with the BPI -- sorry, with the RBC branches coming onboard, the number is back up to the 867 physical branches, which is the same level we had in 2019. CET capital -- CET1 capital stood at PHP 350 billion, up 8% from last quarter and 17% from last year on additional shares issued from the merger and income accretion. Capital ratios remained robust despite the increase in risk-weighted assets and the capital distribution. These resulted in CET1 and CAR ratios of 14.7% and 15.6%, down 93 and 98 basis points respectively compared to last year, but these remain well above internal and regulatory limits. We also want to give you some updates on our digital and engagement platforms. You're already familiar with this slide where we show our digital client engagement platforms and the new and upcoming features which you see above as well as the key metrics, which we monitor below the images of the apps. On Vibe, we have over 900,000 sign-ups, 13% of which are new to bank and onboarded without the need of an ID. On the new BPI app, we have 6.8 million enrolled and 4.6 million active users. We launched our new BPI Trade app in March. And we successfully migrated all clients from the old to the new platform by April '17. We now have 326,000 enrollees on BanKo, which is up 96% from last year and 21,500 enrollees on BizKo. On BizLink, we have 41,000 -- sorry, a 41% penetration rate on an expanding client base and the number of transactions on the platform is up 64% year-on-year. And earlier this month, we launched our seventh platform. This is our customer engagement platform for high net worth individuals, which was launched earlier this month. Called BPI Wealth, this platform completes our suite of 7 digital engagement platforms, each designed for a particular client segment. The rollout of BPI Wealth Online is underway and will be done in phases, starting with about 25% of client base. That platform -- this platform allows clients to see the bigger picture, enabling clients to have a holistic view of investments and placements with BPI and its subsidiaries. It allows them to invest with ease and access exclusive personalized insights and expert advice and contact their relationship manager directly using this platform. We continue to add new services and security features to our BPI app since we launched the new version in April of last year. We're very pleased to share the addition of the mobile check deposit feature, which addresses the pain point of going to the branch to deposit checks. So with just a few clicks and by simply taking a picture of the check, you're now able to process that check deposit. The BPI app is the only app among the major 3 banks to offer this feature. Other new features added in the first quarter of this year include viewing of wealth portfolio accounts, multi-device support as well as additional security through the trusted -- managed trusted devices feature. Also as of February, the BPI app is downloadable on the Huawei app gallery, which further increases the bank's user base for downloads of the BPI app. In December 2023, VYBE launched the pilot of cardless withdrawal, a unique feature among e-wallets, which we expect to greatly improve sign-ups and the conversion rate by when we do the full launch in the second quarter of this year. As of March 31, 877 ATM machines allow cardless withdrawal for VYBE customers. As an e-wallet, VYBE has a critical role in meeting the call to reach 50 million customers by 2026. To achieve higher sign-ups and conversion rates, the app features seamless onboarding and offers 3 options to join depending on the customer's eKYC level. Effectively, anyone with a mobile phone, even without an ID, can enroll in VYBE Lite and may later upgrade to VYBE Regular using a valid ID. As of March of this year, over 900,000 clients have signed up with VYBE, and this is even without the benefit of a large scale, high profile public launch. On sustainability, BPI continues to be a trusted leader in sustainability among Philippine banks through various pioneering initiatives. BPI launched an array of green solutions, including solar mortgage, eco-build financing and e-vehicle financing, the first collection of eco-friendly housing and auto financing options for retail clients in the Philippines. BPI acquired Robinsons Bank's Go Teachers Loan portfolio with an outstanding balance of PHP 6.4 billion, serving over 27,000 teachers. BPI Dela Rosa - Paseo and BPI Iligan have become the latest IFC EDGE certified green bank branches for a total of -- actually, it's now 14 green bank branches since 2022. Finally, BPI formalized a Board-approved exclusion list designed to reflect the bank's existing practices on observing E&S-related laws and regulations as well as E&S-related commitments, including the bank's coal phase-out policy. So basically expanding on our coal phase-out policy. BPI also continues to work on its ESG-related commitments. PHP 827 billion corporate and SME portfolio is in support of the UN SDGs versus a target of PHP 1 trillion by 2026. 29% share of coal in BPI's power generation financing mix is significantly lower than the 61% share of coal in the Philippines power generation mix as of the end of 2023. BPI targets to zero out its coal power generation portfolio by 2032. 738,425 under bank Filipinos and MSMEs served. It's part of our target of reaching 5 million by 2030. BPI continues to be widely recognized as a leader in sustainability by various award-giving bodies. As of April 2024, the bank has received 9 ESG-focused awards, including those from Finance Asia, Global Finance and The Asset, and these are just received within 2024. So let me close with a summary on profitability. We delivered strong first quarter operating performance. We continue to maintain a healthy balance sheet with ample liquidity and capital. Overall, asset quality remains strong despite an uptick in the NPL ratio. And we have sufficient allowance for these credit losses. Finally, we further strengthened our leadership in digitalization and sustainability. Overall, we are very encouraged by our operating results for the first quarter. While risks and uncertainties remain, we are confident that the bank is well positioned to perform within our operating environment and to deliver growth and enhance shareholder value. With that, I would like to open the floor to questions. If you just give us a minute to set-up here at the front.

Thank you, Eric. Before we open the floor to your questions and while we set-up, may I request our senior leaders to join TG and Eric here in front; Ginbee, Jojo, Gene, John-C and Boe. And if you are joining us via Zoom, there are 2 functions at the bottom of the Zoom webinar screen that you may use to queue for your questions. One is the raise hand function, and I will then prompt you and unmute your line for you to speak. Alternatively, you may type your questions in the Q&A box and we will read out your question on your behalf. For those on site, you may -- we will pass out a cordless microphone. So just raise your hand and we will hand you the mic. In any case, please identify yourself by your name and company so we can address you accordingly. We'll start with any questions here on the floor. Anyone? Yes, please.

Hello. Joahnna from [ BofA ]. Could you walk us through the reason why there was a bump up in terms of Stage 2 loans to 12% I think from 9% a year ago? I understand that of the Stage 2 loans, about 80% is current, but any particular sectors?

So basically, again, we're not seeing any specific sectors that are problematic for us. As you see, a lot of the increase, I think we showed the increase, the breakdown in the NPL ratio in terms of per segment. And a lot of it's really coming from the consumer sector. So on the corporate sector, it's not dominated by any specific industry. And so we're seeing it more or less pretty broad-based. I think what I mentioned before in the past is that it's really rather than industry specific, it's really more borrower specific. For those borrowers that are highly leveraged, they're really more exposed to the challenges of the higher interest rates. And so that's where we're seeing borrower weakness.

Yes, [ Alfred ]

Just a quick question on your branch network. Now that you're up to close to 900 branches again, is there a plan to cut that further or are you happy with that level post-merger with Robinsons?

I think, Alfred, and I'll let Ginbee talk a little about the strategy there. I think, obviously, it bumped up because we inherited 180 branches, 158 from Robinsons Bank. So obviously, we are going to rationalize them. Some Robinsons branches will be kept, some BPI branches will be also rationalized. Maybe the way to look at it is what's the overall thinking about our brand strategy, and I'll let Ginbee talk about that.

Alfred, thank you for the question, because really, from a digital strategy, which we've been into for quite some time, we do need to assess the value of our digitalization relative to our physical presence. And in any optimization, we have to consider not just the cost, but also the opportunities that lie ahead. So to TG's point, yes, there will be certain areas where we feel we are very saturated, and therefore, we will reduce the duplication. But there are areas where we're not adequately represented, and there, we will open new branches. Second, there will also be opportunities for us to expand existing footprints of our branches where we feel that our current size is no longer applicable, just because we are also now transforming the branches from just transactional to actually advise city. And therefore, the look and feel of the branches will have to be very different. It has to be more welcoming, has to be more approachable, the way the customer experiences in the branch should be really super welcoming. And so we are rationalizing in that sense. So the Robinsons Bank branches where we feel we -- in certain areas, we'll have duplicate presence, we will consolidate or even co-locate. And for those where we feel we are not adequately represented, we will keep. The key branches that will be kept would of course be those in the Robinsons small branches where the Robinsons Bank is more strategically looking at that.

I think, Alfred, the best way to understand it is to think about what's strategy, not just -- branches are clearly just one part of the distribution strategy. So if you think about our distribution strategy, it's branches, it's digital and it's agency. And it's not -- they're not by themselves silos, they complement each other. So the fastest way to get the customer count up is clearly through digital because it's pervasive and it's very efficient in terms of cost. But there are certain services that you do need a physical presence. For example, sales of high-value products that's going to be at the branches. The fact that we are rolling out agency also allows us to basically say we have a big [ bank ] anywhere working with today 5,300 doors where we are present today. You can onboard and be sold the basic products at these partner stores. And eventually, we will be able to do transactions such as cash-in and cash-out at these stores. The branches channel is important in light of also the Robinsons transaction because that gives us a footprint into all the Robinsons malls. You would recall that we do have footprints in all the Ayala malls. And now with Robinsons malls, we basically are always going head-to-head now with the other banks, right? And one of the things that we can do now is begin to really do an aggressive campaign to target the deposits of all the malls located. So that's our strategy.

Okay. Just last question. What's driving the NIM expansion? I mean, there's a big increase in NIMs.

Yes. So actually -- I mean, we actually did take a look at that. I mean, so we're continuing to see NIM expansion. A large part of it comes from -- as you know, we're -- the last rate increase was October of last year. So we're some time away from that. We'll continue to see a few minor improvements in terms of the overall loan portfolio coming from that -- from the loans that are priced from 6 months to a year out from that increase. But the bulk of it is really coming from our shift towards the consumer portfolio, right? And then so you see that we did have a big move of about, what was it, 4.25 percentage points versus where we were last year. And that in itself, we computed to be approximately 17 basis points out of the 25. Yes, it's about 17 basis points of NIM expansion just on that, yes.

[indiscernible]

So out of the 13% growth in the institutional portfolio, how much of that came from corporate -- from our bank? Yes, I don't have that on hand. Yes. So I mean -- so we have it on the...

On the consumer.

So John said, we have on the corporate.

[indiscernible]

Gilbert, the impact of RBC, our mortgage book, as reported by Eric, grew by 31%. If you net out RBC, that's about -- we will -- our mortgage book would be growing by 11%. So the impact is 20% because it accounts for PHP 36 billion. And then for auto, our growth, as reported by Eric, is 38%. Auto accounts by about PHP 3.6 billion of that portfolio of RBC. And that would therefore be -- would come down to 27%. So it's about 10% that's due to RBC.

Okay. And then on credit cards, Gilbert, credit cards, RBC contributed about PHP 1.6 billion out of the total PHP 138 billion portfolio of credit cards. So a very small number. So on its own, BPI portfolio quarter-on-quarter grew by 35%. On personal loans, out of the PHP 18 billion portfolio, RBC contributed about PHP 1.1 billion. So very negligible also. So on its own, we grew by 80%. And on microfinance loans, it's purely BPI, and it grew by 57%. What RBC brings to the portfolio is about PHP 6 billion incremental in teachers loans, which is now accounted as part of personal loans. But nonetheless, on its own, organically, BPI grew still by 79%.

Yes. So for the corporate side, Gilbert, the increment from our bank is about PHP 50 billion or so, PHP 55 billion or so, of the corporate book. So -- and once we started the merger, once we implement the merger in January, a lot of the book was effectively unified because there were a lot of common clients. So you can consider that the growth is far less organic of the -- from the merged equity already.

And you can use the 13 more or less.

But 13 is blended for Eric's portfolio, because the high growth, as Eric pointed out, is from consumer and MSME.

Would you say also NIM would have expanded even if there was no RBank?

Yes.

Both sequentially and year-on-year?

8.5% is -- so without RBank, it wouldn't grow 8.5%.

The investment on NOI, as what John-C mentioned...

No, the portfolio was PHP 50 billion.The outstanding portfolio is PHP 1.5 trillion. So PHP 50 billion amount [indiscernible]

So still double-digit?

Yes, yes.

And the NIM would have still been up?

I think so. It's really because you can see even on ourselves, if you think about, and I don't like doing this, right? There's no such thing as [indiscernible] But the portfolio of BPI, if you take away the Robinsons portfolio that we inherited from January 1, even shifted what's part of that shift that grant us more consumer, what I would call consumable versus the non-consumables, the Robinsons portfolio [indiscernible]

Yes. And would you say -- last question, would you say, NPLs would have been sub-2% without RBank?

Okay. We'll take some questions online. First from Melissa Kuang. Post the merger of RBC, is there anything in the portfolio you would like to trim down? And any concerns on any part of the portfolio?

Not significantly. I mean, if you're asking if there's anything I don't like about the Robinsons Bank portfolio?

Any part of the portfolio you would like to trim down or any concerns on any part of the portfolio?

No, none. The only thing which I have done was the divestment of both, which is more a conflict of interest and just good governance on our part. So nothing really material in the portfolio. It's a great portfolio. It's consumer focused. We like the fact that it bears a lot of the ecosystem of the Gokongwei Group and Robinsons Retail. It's got motorcycle loans, which we're beginning to roll out as a new product for us. And then obviously, teacher loans is one of the things that we're finding is going to be something we're going to be focused on taking the license that Legazpi Savings has and putting our distribution network as well as our capital behind that business. So it's a very small business for Legazpi Savings Bank, but it's a very big business nationally.

Okay. The next question is on credit cost. Is the first quarter 2024 credit cost the run rate we will see in the next few quarters?

Yes. So that's generally what you should expect to see moving forward. Of course, we will always be flexible as circumstances dictate. But based on our forecast, this is representative of where we think the year will be.

Okay. On NIMs, can I check, you mentioned in the presentation that the first quarter 2024 NIMs can be sustained through the year. Are you expecting any rate cuts later in the year?

So first, we'll say, at the start of this year, we indicated that we were expecting rate cuts this year to start in the second half of the year, probably in July. And even in that circumstance, we believe that NIMs would remain well supported throughout the course of this year. Over the last couple of weeks, the chance that rate cuts may not be implemented starting July has probably increased, increased the chances that rate cuts will not be applied starting July. It may come later. It does seem like the chances it's going to come later is greater, which means that there's going to be even more reason to think that NIMs will stay at these current levels for an even longer time.

Okay. And then our next question comes from Brian Cheng. Does 12 million customers include RBank? If so, how much is organic growth in customers and any large segment in particular?

The 12 million doesn't yet include our RBank because we're still in the process of consolidating our customer numbers.

Yes, we have to do hit the...

They do, yes.

Okay. And then from [ Francis Beader ] Is the mild growth in tech expense something that we can expect to be continued in succeeding quarters?

Tech expense.

And what is the target NPL and NPL coverage ratio?

Well, I think when you look at the tech expense, it should follow like last year's pattern. It should rise towards the end of the year. It's really a function of the way projects get billed and the way our vendors bill us late. But there is a clear program in place to make us more efficient in our tech spend. We have a better project management sequence we have put into place. We're prioritizing projects more disciplined today in the hope that what this results in is that less delays and obviously delays cost, higher costs. We are also renegotiating our contracts with our 2 major vendors.

I have no questions online. Anybody here on the floor with a question?

DA from JPMorgan. Just a few follow-up questions from me. First, on NPL. I just want to confirm organically the increase is mostly from the mix and consumer growth?

That's correct. And that's why Eric has -- we have put up and we're being very transparent what the NPL ratios are per portfolio. I think it's a mistake to look at a single number and say this is representative of the whole portfolio because we would -- we're okay to have higher NPLs on those portfolios that obviously give us higher yields, right? And that is -- I think that's one of the successes of the past year. We've been very focused on growing our portfolios in what I would call the non-institutional business. which is SME, personal, consumer, everything else except John-C's book. To grow that because even though we know that we'll have higher NPL, it's asset yield is significantly higher, about 600 percentage points.

Understood. But does it mean your credit cost is expected to move up as well or you think the 30 basis points is enough to cover this mix shift that you're talking about?

So this 30 basis points we think is appropriate for our current level. And again, I think as we said last year, we feel like even at the level which the 150% that we closed -- 156% NPL cover that we closed last year, we felt that there was room for that to go down further. And we continue to believe that that's the case, right? So if you're looking at it on a running cost basis or a through-the-cycle basis, then 30 basis points is probably a bit on the low side. But again, as I mentioned, we think we have room for NPL coverage to come down a bit.

So from the current level, you still have room that's on the NPL coverage side?

That's how we feel.

Okay. Moving on the tech side. I think we've had this discussion before on in-house versus outsourcing. Has that discussion move? Are you starting to do more in-house, for example? How has that gone on?

Well, it takes a while to change overnight. We do have a team that does in-house now. What the strategy is to build a team that's capable of doing in-house development for what we would call the layer of engagement, the ones that deal directly with the consumer. So the core of the apps you see are still outsourced to vendors, but so that we have agility in being able to bring the change in the user experience, the interface, the colors, we're beginning to do that in-house, but it's not going to happen overnight, DA.

So it seems like increasingly there's more being brought in-house? Is that...

Well, it's the thought that has to happen because many banks in the world are beginning to realize that you can't outsource everything in terms of development. Even for me, strategically, when you look at it, we have a lot of vendors that do our development work, but we are a Philippine bank, right? And relative to global banks, we will get last priority with these vendors. So it's just a reality of life where we're a small bank relative to global banks. And therefore, these big vendors, these world-class vendors, we're not their #1 customer. And therefore, if there's something that we want to change, we fall in the queue. We need to speed that up. And that's why we will bring some of it in-house.

Understood. And last one, just growth guidance on loans across the segments?

Yes. So I think, obviously, over the last couple of weeks, we've seen a bit of an evolution in the outlook for the economy. So I think we need to give that a little more room before we make any adjustments to our forecast that we came out at the beginning of this year. But just to remind, the forecast that we've been mentioning at the beginning of this year was for growth in the low-double-digit range and low-teens. So call it maybe kind of in the 11%, 12%, maybe 13% range was our forecast. The higher for longer has the potential to bring down GDP growth for the economy as a whole. And if GDP growth does come down, then we can naturally expect loan growth to moderate slightly as well. But as of this time, we haven't made adjustments to that forecast yet.

In the guidance it's the like-for-like.

Yes. And that's why that is on a like-for-like basis, kind of the organic side of it. It doesn't yet count that obviously, call it, 6% of loans came in as a result of Robinsons Bank.

Okay. We have a couple of questions in terms of NPL coverage from Selvie Jusman and Rafael Garchitorena. What is the target NPL coverage? And what level would you consider appropriate before bringing credit costs back to normalized levels?

I think the target for NPL cover is very much affected by our outlook moving forward. So if this extended higher interest rates are higher for longer results in economic growth kind of falling to the floor, if that should happen. And so if things really start to slow down and we start to see increased stress among our borrowers, then we would start to bring NPL cover back up. Currently, with our current view of the market, we think it can come down to about the 120% level with the view that eventually it would make it even down to the 100% level, because if you think about it, how much NPL coverage do you need, you need as much as NPLs -- as much NPL cover as there are going to be NPLs, right? Answer to the question is, are NPLs going to trend upward from here or downward from here? That's the real question. And just as a reminder, the NPL cover does not count the collateral cover for which we have about 200% collateral cover. But that being said, we're still more or less in the range of about 100% NPL cover -- 100% of the expected NPL cover is kind of what we're looking. So it's really a matter of measuring where we are versus where we think NPLs are going to be.

There are a couple of questions on the customer -- number of customers. From Brian Cheng, is it fair to say 1 million plus of new customers will be run rate for next few quarters?

Hopefully not. We have an internal target for the year that's significantly higher than the 1 million per quarter target. Obviously, this is an ambitious target for us, but the team is really set on trying to achieve this. And as I tell my friends, if we look back in 2026 and we don't make the 50 million target if we're at 40 million, would you say that we have failed to change this bank significantly given that in 2021 we were at 8 million.

And then what's the target consumer segment percentage contribution to loans or revenue for full year 2024?

For full year 2024, well, actually, our goal was to bring this down to 70% by 2026. So for 2024, I think that 70% yes, it was so as close as possible to that as we can get. The contribution of Robinsons Bank in this respect was really quite significant beyond what you would think as the contribution of a bank the size of Robinsons Bank would make. But so it's been quite significant. It's really helped us get closer to the target, but we continue to push forward.

Okay. Next question from Shane Matthews. Congratulations on the results. Just to clarify, if I heard correctly, the 12 million customer count doesn't include the Robinsons Bank customers? If so, any key aspects you would like to highlight which contributed to this growth given the customer count has grown substantially from end 2023 at 10.6 million?

Yes. So Jojo or Ginbee?

Yes. Well, the -- if you look at the growth of the 1.7 million, a big chunk of that is coming from the core mass market. As you know, we've actually relaunched and launched our core mass market value proposition last year. And that has really given us the needed growth that we needed in the customer base. 50% of our acquisition has come from our digital channels. That means our own BPI mobile app where you can open in 5 minutes with just one ID and through GCash because we have a partnership with cash through GSave. Those 2 channels, digital channels have counts for half of our customer base acquisition.

We have a couple of questions from Selvie Jusman. It seems like there is a good CASA consolidation from RBC, do you see more room to improve deposit mix from the new client base? And the other question is what was NIM expansion Q-on-Q excluding RBC?

Okay. Well, on the CASA, if you look at the contribution of new to bank versus existing to bank customers, the growth of our deposit base still largely comes from existing to back. New to bank usually is a long tail wherein you acquire them with low required deposit balances, and eventually, over time, with cross-selling with enhancements in our services, they grow with us. And normally, these are really, as I mentioned, coming from the core mass market segment. So the existing to bank where we see much of the growth of our existing deposits. Where we're going to grow -- where we see our CASA growth coming from will be 2 major initiatives. One would be through a payroll acquisition initiative, which is in tandem. It's a joint effort with institutional banking of John-C. And that's really because we see an ecosystem play when it comes to payroll. It has to have the support of our institutional banking, deepening relationships with our existing corporate clients so that we can get their payroll counts and those payroll counts translate into consumers. The second major play here is really on our payments. The utilization of our deposits will lead down -- higher utilization of deposits will lead down to higher CASA. And therefore, payments is a critical function and facility to be able to grow the CASA balances. Your ability to pay bills, your ability to transfer payments, your ability to pay via QR, pay a merchant, all these bills that we had done in the past will definitely lead to further growth in our CASA. But there's of course still more to be done. And that's why Boe is heading the payments council because we see payments really as an anchor when it comes to increasing utility value of our CASA deposits.

On the NIM, what was the NIM expansion quarter-on-quarter, excluding RBC?

Yes. So it's very difficult for us to break out the NIM contribution from RBC versus non-RBC. And again, what we've been seeing over the course of the integration process is that some loans that in a sense were bought by RBC, RMs or actually being booked at BPI. And so there's -- it's difficult to kind of me to try to be too precise on that. Our NIM growth from the fourth quarter of 2023 to the first quarter of this year, moved from 4.14% to 4.19%.

I don't have any questions in the queue or in the chatbox. Anyone here on site? Yes, Alfred, go ahead.

Yes. I guess, in terms of integrating RBank, should we expect additional OpEx costs in the coming quarters as you integrate the branches or...

I mean, certainly, over the next -- actually, 18 to 24 months, we will be incurring OpEx in relation to the RBC merger. The reality is we've already started to incur some additional OpEx because of the RBC merger and that will continue for us moving forward as well. I mean, there are going to be integration costs and we do realize that. Our goal is just to make sure that we maintain a positive jaw as we move forward.

If I may, Eric, in terms of some technology costs, one major cost to whatever we spend is separating the system of Robinsons Bank from the GG Summit Data Center, and we have achieved that come March. So now the additional spend will be on the security aspect before we integrate the system, and it might take us 12 to 18 months.

Obviously, Alfred, there are costs, right, in the integration. Just for example, converting many of their systems and getting that data on to our platform -- our own systems, that will have a cost. You talk about just the branch transformation that would have a cost. But hopefully, what happens, and this is what I think will happen, is that the ability for us to tap the existing client base, the additional branches that bring in, the 158 that might be reduced. But it's clearly more people out there selling and Robinsons Bank has a very strong selling culture. And then the fact that we are also now able to tap the whole ecosystem of the Gokongwei's with more capital, which means more capacity. It's a business that Robinsons Bank wanted, but couldn't get. And maybe I'll ask Boe to talk a little bit about how the Robinsons Bank branches are now working with the BPI Bank branches batches to cross-sell because when we look at the performance, we're seeing the very strong performance out of the Robinsons Bank branches.

Yes. So the scenario right now is, first, on the branches of Robinsons Bank, it's still operating as Robinsons Bank, we have not changed the signage simply because the system is still Robinsons Bank. So we don't want to confuse the client. Meanwhile, just to make sure that we are able to leverage the branches of Robinsons Bank, we have started introducing the BPI products, for example, Bancassurance. Because of the merger, Robinsons Bank lost the partner and we're now pushing the Bancassurance products. So BPI buy the Robinsons Bank channel. And we're seeing a lot of positive results from the cross-selling. The other one is there are interesting products that we don't have, like the product of business banking because of the very strong focus of BPI in SME where kind of our branches are excited about the product and now pushing heavily on referring means because we have a lot of small depositors, clients, especially suppliers and normally in our business, but we're kind of conservative. Now we are able to tap some of these suppliers based on the flow of business, which is something that we are excited about now that we have a product that suits some of these suppliers. And another thing that we are currently working with the group of Gen Z incorporate the supply chain financing, again, using the ecosystem. I guess, what I'm emphasizing is branch network, the loans that we gave through the merger. But the real prize here is the ecosystem that we can -- we've done so much when we were standalone, but with the muscle of BPI, I think we can learn from the ecosystem play and do it in -- with the Gokongwei and the Ayala Ecoplay, then that may be the value of this merger moving forward.

Just to add to what Boe said at the back room, what we've also done is that we have already aligned all the processes of BPI and we applied it in Robinsons. In that way, we were able to create synergies in terms of the head count and the capacity of the people in Robinsons.

There's a big signing in itself on Robinsons Bank, the mall [indiscernible]. So should we expect that to be changed to BPI after the merger is done? Is this a very prominent...

Yes. That's actually not in Galleria mall. That's our Galleria Condominium Corp where that was the previous head office. And Robinsons Bank is paying, you're correct, paying for -- it's not free. They need to approve.

Okay. Any other questions here on the floor, because I have none in queue? So with that, thank you everyone for your questions and for your participation. Before we end the call, maybe call on TG for some final thoughts.

I guess, not much just to say that how pleased we are as a management team with the results of the first quarter. And again, I thank my colleagues for this. To reiterate Eric's message, very strong revenues driven by very strong growth on the asset side, expanding NIMs as a result of the shift of our portfolio, moving the share of about 4 percentage points towards what I would call the non-institutional business. Expenses continue to grow as we invest in our -- the expenses really grew out of manpower, out of technology and we continue to push that because we want the best people with us. So we are also high expenses on marketing, but marketing to us is variable. As long as we've got positive jaws, and right now, we've got 500 basis points of positive jaws, I think we're in good shape. The team is very focused on executing their business. Eric and I are very focused now together with our Chief Technology Officer and our Chief Information Officer on rationalizing the cost. We think we have done enough to get the systems out. Now it's time to renegotiate and recontract many of these vendors and to rethink the strategy. The first step was to understand our process, our project management. We have made that a better process. We have put in a process to prioritize projects so that we can -- we have a sort of a pipeline of projects going forward that should make our spend a little more rational going forward. That said, we continue to be optimistic about the year going forward. Consumer confidence remains high, our billings and cards, our re-leases and mortgage and auto remain high. We get a lot of interest on the corporate side, continue see interest. We are focused on growing our CASA. We have a project today that's a combination of the consumer bank as well as the corporate bank, as Ginbee mentioned, to try to get more payroll accounts, working with our corporate accounts. And we're still committed to the digital strategy. Our 7 platforms are up. We have more and more features coming on. I hope all of you are able to use our check deposit, mobile check deposit, so you don't have to come visit our branch when you get paid by check, if you still get paid by check. And then finally, we do have our new website to look at your wealth platform. It's a 360 degree. And so hopefully, some of you will use that. If not, please move over to us and be our wealth clients. With that, thank you for joining us today. And we're looking forward to meeting you again in another 3 months. And of course, we'll be happy to answer questions on the site. Thank you.

Thank you, TG, Eric and the BPI management team. Ladies and gentlemen, this concludes our today's earnings call. Thank you for your participation. To those joining us online, you may now disconnect. To those on site, please join us for some refreshments outside. Thank you.