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

Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's first quarter 2025 results. I am Chinky Lukban, your moderator for this session. We are conducting this briefing in a hybrid manner, with our BPI speakers and panelists here in our headquarters at Tower 2 of Ayala Triangle Gardens in Makati City, while the rest of our participants 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. They will be joined in the panel for the Q&A by the following: Ginbee Go, Head of Consumer Banking; Tere Marcial, Head of our Private Wealth business; Dino Gasmen, our Treasurer and Head of Global Markets; Louie Cruz, Head of Commercial Banking; and Boyie Sarte, Head of our Payments Council. We are also joined by the rest of the leadership team in this call. This afternoon's agenda will begin with opening remarks from our President, TG Limcaoco, followed by our CFO and CSO, Eric Luchangco, who will walk you through the first quarter performance highlights, digital and sustainability updates. The floor will then be opened to questions from the audience. This call is being recorded and legal disclaimers apply. Now let me turn you over to TG for his opening remarks.

Nice afternoon to everyone joining us today, and thank you for joining us on our first quarter earnings call. As Chinky said, and I am joined today by Senior Officers for the bank, I think the results speak for themselves, a 9% growth in net income versus the first quarter last year of a total of PHP 16.64 billion. I know there are many questions relating to our performance, particularly on our NPL, our cover, our cost of funding. We'll be happy to answer them and give you a view of why the numbers are as such. So at this time, just to go quickly into it, we'll have our CFO, Eric Luchangco, walk us through the results. And then we will do our open forum. So thanks again for joining us. Eric?

Thank you, TG. So I'll walk us through our first quarter performance results. We had a strong start to the year, underpinned by broad-based growth carrying forward the momentum that we saw at the tail end of last year. For the first quarter, the bank delivered PHP 16.64 billion in after-tax earnings, up 18.3% on the sequential quarter and 9% year-on-year on the back of strong revenue growth. Return on equity stood at 15.35% and ROA at 2.05%. We grew our balance sheet further, achieving loan and deposit growth of 13.2% and 6.3%, respectively. Our capital position remained robust with our CET1 ratio at 14.7%, indicating an ample buffer for future loan growth and investments in our strategic initiatives. Asset quality remains well managed and is at a level that we are comfortable with. The rise in the NPL ratio to 2.26% continues to be driven by the strategic expansion of the noninstitutional loan book. Meanwhile, NPL cover remains within our target range, closing the quarter at 100.11%. We continue to grow our client base, reaching 16.7 million customers. Our agency banking business is demonstrating encouraging results, contributing to the increase in new clients and providing an additional channel for higher levels of engagement with our customers. This month, we started the consolidation and transformation of RBC branches into BPI branch formats to align the customer experience and achieve cost savings. The 9% increase in net income to reach PHP 16.64 billion was driven primarily by growth in revenues. Net interest income of PHP 34.42 billion was up 15.3% year-on-year, on loan growth of 13.2% and continued NIM expansion, which was up 30 basis points. Trading and ForEx income both declined under the more challenging market conditions by about PHP 210 million and PHP 430 million, respectively, but this was more than offset by the strong gains in fee income, which was up PHP 1.25 billion versus last quarter, to drive a 6.3% growth in noninterest income. These combined to drive revenues 13.1% higher to a total of PHP 44.7 billion, a new record quarterly revenue for the bank. This revenue growth more than offset the 12.7% growth in operating expenses, which were driven mainly by increases in manpower costs, marketing expenses, technology spend and volume-related expenses. Pre-provision operating profit was up 13.4%, but provisions at double the level of last year at PHP 3 billion tempered the net income growth to the 9% above the first quarter of last year. It's worth noting that last year, we had some issues with timely billing that led to a larger-than-normal jump in year-end expense booking. We have been more diligent on that this year, which means that our first quarter OpEx includes some regular recurring -- our first quarter OpEx of this year includes some regular recurring items that were not included in our first quarter expenses last year to the tune of close to PHP 480 million. If these expenses had been booked on a timely basis last year, the cost base last year would have been higher, and our OpEx growth this year would have been lower, and it would have been just 10%, which in turn would have increased our pre-provision operating profit to grow by 16%. Compared to the prior quarter, net income increased by 18.3%, driven by higher net interest income and lower expenses. Pre-provision operating profit increased 22.4% to PHP 24.4 billion. OpEx declined 16.9% following a 15.9% increase in the prior quarter due to milestone payments related to tech spend, other year-end spend -- other year-end related spending as well as the previously mentioned delayed booking of certain expenses. Profitability improved with the first quarter annualized ROE at 15.35% and ROA at 2.05%. Earnings per share for the first quarter stood at PHP 3.16 per share, an 8.8% improvement from last year's PHP 2.9 per share, reflecting strong income growth. Moving on to the balance sheet. Total resources stood at PHP 3.3 trillion, up 6.9% year-on-year. Loans stood at PHP 2.3 trillion, increasing 13.2% year-on-year, while sequential quarter growth slowed to 0.7%, owing to a strong 7% growth in the fourth quarter of 2024. Despite strong growth in loans, deposits was up by -- only by 6.3% year-on-year, largely from time deposits. The CASA ratio, therefore, continued its downward trend to 6.5% -- 62.5%, in line with market trends. Managed deposit growth and a 450 basis point cumulative reduction in the reserve requirement ratio have supported a sustained improvement in the loan-to-deposit ratio to 89.4%, up 543 basis points from last year and 197 basis points from last quarter. The strong momentum in net interest income was driven by higher loan balances and NIM improvement. Loans grew 13.2% from last year, and this growth was maintained throughout the period with average daily loan balance up 12.2%. Although the loan book typically contracts in the first quarter, this year, the bank reported a 0.7% sequential quarter growth -- sequential quarter loan growth, despite the typical year-end bookings in the last quarter of 2024. Noninstitutional loans account for 28.8% of the loan mix, up 110 basis points from last quarter and 326 basis points from last year. NIM continued to increase, reaching 4.49% to close this first quarter, the highest in the past 5 quarters despite the reduction in the monetary policy rate to 5.5%. NIM widened 30 basis points year-on-year and 12 basis points quarter-on-quarter, driven by growth in higher-yielding loan segments, managed deposit growth, higher LDR and reduction in RRR, although it should be noted that the impact of this year's RRR reduction is not yet reflected in NIM as it became effective only in March -- on March 28. Versus last year, gross loans were up PHP 269 billion or 13.2%, and noninstitutional loans increased by PHP 143.7 billion or 27.6% and contributed 53.5% of the increase in total loans. The increase in noninstitutional loans was led by business bank at 100% personal loans at 38.5%, microfinance at 35%, credit card at 30%, auto at 27.4% and mortgage at 18.7%. On funding, total funding reflected a slight decline on the sequential quarter from a reduction in CASA and from bond maturities. Year-on-year total deposits increased 6.3% and continues to be the primary source of funds, although borrowings also rose by 3.1%. The sustained increases in loan to deposit and loan to total funding ratios are largely due to strong loan growth, managed deposit growth and the reduction in the reserve requirement ratio effective October last year, with another one effective at the end of March of this year. Further improvements are anticipated in the coming months with the additional 200 basis point cut on March 28 to bring the RRR down to 5%. Last month, the bank issued a PHP 500 million 5-year senior bond with a 5% coupon and a PHP 300 million 10-year senior bond with a 5.6% to 5% coupon. This is the bank's largest combined issuance, our first dual tranche issuance and the first 10-year issuance in the international capital markets. The notes were 2x oversubscribed and are listed in -- on the Singapore Exchange. We continue to strengthen our deposit franchise, particularly with our mass market customer segment, which is up 99% year-on-year through consistently strong growth, and it maintains the highest CASA ratio among our market segments. And the NPL level was up 8.8% or -- sorry, PHP 8.8 billion or 20.5% versus a year ago, resulting in an NPL ratio of 2.26%, up 13 basis points from December and 14 basis points from last year. We booked PHP 3 billion in provisions for the quarter, resulting in a 54 basis point credit cost, which reduced NPL cover by 36 percentage points from last year. Yet it remained sufficient at 100.11%. Excluding loans currently paying but classified as NPL under BSP Circular #941, which provides that NPLs that have turned current continue to be classified as NPL for 6 months. NPL stood at PHP 46.7 billion, and the NPL ratio would -- using that computation would be 2.04% and NPL cover at 111.01%. Excluding an additional PHP 420 million in technical NPLs from auto and housing, the NPL ratio would lower further to 2.02% and NPL coverage would remain at 111%. And in a historical -- and looking at this in a historical context, NPL cover has been as low as 47% back in 2006. On an NPL per product basis, NPL ratios are significantly lower than the peak levels seen in 2021. However, they are higher than the pre-pandemic levels as a result of our -- of the ongoing expansion of the noninstitutional segment. Total NPL coverage at 100.11% has significantly declined from the peak of 183% during the pandemic, and this reduction has prompted some questions about the adequacy of coverage for our NPLs. But rather than focusing on total NPL coverage, we wanted to show you here the NPL coverage by segment, which takes into consideration the varying levels of risk and collaterals in each of the loan segments. Credit card and personal loans are unsecured, so there's less prospect of recovery from defaulting loans, therefore, requiring greater coverage. Consequently, our NPL cover is 146% for credit cards and 107% for personal loans. Microfinance loans are also unsecured, but NPL cover is slightly below 100% because -- and the microfinance loans historically have lower LGDs, or loss given default, compared to our personal loans. For institutional banking, we provided for 125.7% NPL cover. The secured collaterals for this -- sorry, and this does not include the coverage of -- the coverage with collateral, which is, overall, for this portfolio, still around 200%. The secured collaterals include real estate mortgages, project assets, chattels, deposit holdouts, government and corporate securities and bonds and similar assets. Institutional accounts are generally of low risk, given the size of the borrowers. Auto and housing loans typically have less than 100% NPL cover as these are secured by the underlying assets on which the loan was extended, reducing the risk of loss. Auto loans have a loan-to-value of 74%, resulting in a collateral cover of 135%. Adding reserves raises total cover to 204%. For housing, the loan-to-value is 47%, resulting in a collateral cover of 212%. Including reserves, cover would be 235%. Credit cards, which have more than doubled in volume since 2019. Personal loans having grown over 6x, microfinance almost 4x, while auto and housing loans have nearly doubled, have allowed us to extract more value from their risk-adjusted margins. I'll show you on the succeeding slide these risk-adjusted margins, and the higher level of NPLs is, again, a consequence of higher loan volumes in -- on the riskier side of the book. So we want to show here the performance of each of these. We're showing here a modified RAM. RAM is typically net revenue from lending, less the NPL ratio, which is typically the loss that you would expect to take on the portfolio. But in this table, we have also subtracted the write-offs to be taken per loan book, so that from the revenues generated, we are not only reducing the expected losses, but also the losses already taking -- already taken, making it more conservative. You will see that each of the loan books continues to generate positive returns, even after taking this very conservative approach on credit losses. On fee income, that stood at PHP 9.25 billion, down 1% on the sequential quarter following the seasonally strong fourth quarter performance. But compared to the first quarter of last year, fee income grew 15.6% on the strong contribution of all segments led by cards, digital channels and wealth management. The card segment saw a 27% increase, driven by a 19% rise in credit card retail billings. Despite a decrease in the average transaction amount compared to last year, there was an increase in transaction frequency over the same period and an 11% year-on-year increase in active customers. Digital channels saw a 31.3% increase, primarily driven by a 29% increase in the transaction count. This growth was further bolstered by gains from partnership APIs and VYBE. Additionally, there was an 18% increase in GCash transactions and an 89% increase in ShopeePay transactions. Wealth management fees were up 8.1%, driven by a 22.7% rise in assets under management year-on-year, which reached PHP 1.7 trillion. Of this growth, 84% was due to net inflows, while 14% resulted from an increase in asset valuation. Cumulative inflows in the last 12 months rose by 62% year-on-year. Total operating expenses at PHP 20.3 billion were PHP 2.29 billion or 12.7% higher than last year, with increases recorded across all expense categories, except regulatory costs. As mentioned earlier, the increase in expenses year-on-year also reflects our proactive approach to booking expenses more promptly, thereby reducing the scale of expenses ballooning at the end of the year. Although I will note that year-end is really a more active period for the bank overall. Manpower costs reached PHP 7.5 billion, marking a 13.8% increase of PHP 911 million. This rise was mainly due to salary adjustments and an increase in the total headcount. Technology costs totaled PHP 4 billion, reflecting a PHP 908 million or 29.3% increase compared to last year. This rise was primarily driven by IT outsource services, software subscriptions and maintenance, all aligned with our digitalization initiatives. Other operating expenses amounted to PHP 6.7 billion, reflecting an increase of PHP 286 million or 4.5%. This rise was driven by business volume-related expenses and third-party fees, including marketing costs, which account for 55% of the increase. Cost-to-income ratio still declined lower by 16 basis points to 45.4% on strong revenue generation. We continue to make progress in our efficiency initiatives. Our client base expanded by 700,000 to 16.7 million through the course of the first quarter. This month, we began consolidating 77 Robinsons Bank branches with BPI and converting 67 Robinsons Bank branches into BPI branch formats. This process should be completed within the year to reduce our total branch count. Since 2019, the total number of transactions has nearly tripled. And in 2024, only 5% of these transactions are processed at the branches versus 20% in 2019. Our capital position remains solid with CET1 capital at PHP 381 billion, up 4.2% from last year and 9% from -- up 4.2% from last quarter and 9% from last year. The CET1 ratio stood at 14.7% and CAR at 15.6%, well above internal and regulatory thresholds, despite the increase in RWA and capital distribution. On establishing ourselves as a leader in digital banking, let me allow -- please allow me to provide a brief update on our client engagement platforms. BPI VYBE, our e-wallet starting on the left, currently has 1.89 million sign-ups, with 75% being VYBE Pro users, allowing them higher usage limits. We continue to add new billers and launched buy load with no fees to bring in recurring transactions. The BPI app, which is our main operating app for retail clients, has introduced new privilege cards for affluent clients with personalized and exclusive services. Our new app features allow users to save new billers in favorite and digitally open new account for credit card-card-only customers. Users can enjoy new web features to like regular subscription plan, amend the subscription plan and currency conversion. Next, BPI Trade app for clients who invest in equities saw an increase in overall app usage, despite a decrease in unique log-ins. The reduction came from traders who started to monitor less due to -- due likely to global factors, but with an increased activity for the regular traders. We believe the launch of e-registration will help boost account opening attempts. BanKo-- the BanKo app for microfinance clients saw the relaunch of InstaCashKo loans. Clients can now apply for loans of between PHP 2,000 to PHP 250,000 on an unsecured, no collateral, no co-maker cash loan straight through the app. The BPI BizKo app for SMEs, although currently with just 26,700 users has direct-to-client communications and continuous campaigns help drive enrollments and an 88% year-on-year increase in the number of active users. BPI BizLink is for corporate clients. First to -- will be the first to launch the [ Meteor ] MCD, mobile check deposit, among our peers and [ Meteor ] migration, which helps us improve the app and gain 800 new clients. We believe migrations to follow will allow us to further increase our client penetration rate. Finally, we have BPI Wealth Online for high net worth individuals, which has over 2,000 active users, which is a 25% increase from last year. We continue to grow existing functions, increase capabilities in open banking and improve the UI/UX. We now have 115 API partners, up from 74 in 2019, and offer more than 17,000 brands from only 749 in 2019. We're happy to report that nearly 2 years after the launch of Agency Banking, we are now seeing -- we are seeing positive results. Recall that in 2023, our primary focus on establishing -- was on establishing partners to set up partner stores. In 2024, we shifted our focus to activating those partner stores, selling products and launching transactions to further boost client take-up. To date, we have successfully collaborated with 22 retail brands, resulting in nearly 6,400 partner doors where customers can apply for BPI product. From only about 8,500 products sold in the first quarter of 2024, we sold more than 75,000 products in the first quarter of 2025. This is an 8.8x increase through the course of 1 year. Beginning the third quarter of 2024, we also started to offer deposit and withdrawal services through a select number of branches. From over -- from 2,800 transactions in the third quarter of 2024, the number of deposit and withdrawal transactions has increased to 17,100 in the first quarter of 2025, up 5x. We also saw a steady increase in the products sold per store per quarter. From barely 2 products per store in the second quarter of 2024, we have now reached close to 12 products per store in 2025. Also in 2024, under Agency Banking, we launched a merchant payment solution to grow the payment to merchant business, or P2M business. Our merchant payment solution enables merchants to accept pure payments from any bank or wallet, facilitating seamless payment processing and allowing businesses to streamline their operations. Through our e-payment portal, merchants can conveniently manage, track and reconcile transactions. Using our P2M facility will not only strengthen relationships, but boost deposit volumes. As of March 2025, we have signed up 1,520 merchants with 26,250 doors among them. In the first quarter 2025, we processed 846,000 transactions, up nearly 10x year-on-year. The transaction value reached nearly PHP 1 billion in value or 16x the value processed over the same period last year. In January 2024, we launched BPI Salary On-Demand and Salary On-the-Spot, which allows employees to instantly access their earned salary in advance, anytime and anywhere. The product is available on the PayWage app, and employees may withdraw up to 30% of their earned salary in advance with just a few taps. And since BPI Salary On-Demand is not a loan, it is interest free, but subject to a fixed processing fee. The product is designed to complement BPI's payroll solution and offered exclusively to our BPI payroll clients for now. As of March, we have 103 companies with 147,000 employees enrolled in this product. We piloted a new product last month that will allow non-BPI clients to withdraw funds from their E-Wallet and non-BPI bank accounts through our Agency Banking partner doors using QR Ph. We charge a service fee for non-BPI clients, but if they transfer their funds to BPI E-Wallet or a BPI account, the service is free of charge. On the sustainability side, BPI further boosted its sustainability efforts in the first quarter of 2025. BPI is among 2 Philippine banks selected to become a member of the Alliance for Green Commercial Banks in Asia, led by the IFC to accelerate green transformation of the banking sector and of the region and embed sustainability into core strategies and institutional culture. We also financed a 15-year syndicated loan for a 3,500 megawatt solar power plant and a 4,500-megawatt battery energy storage solution -- storage system, the world's largest single-location solar farm. BPI also financed a 10-year loan facility to support by Maynilad's water and wastewater projects on the West side of Greater Metro Manila, and the bank launched cutting-edge payroll solutions designed to simplify and expedite the opening of payroll accounts and digital onboarding of employees. BPI introduced a yearly renewable term life insurance product offering simple and affordable protection coverage for individual clients. And finally, the bank offer -- partnered with Department of Education to donate 243 tablets and laptops to public schools nationwide. As of March 2025, BPI has garnered a total of 12 ESG-focused awards, 5 of which were won by BPI Capital at the Alpha Southeast Asia's 18th Annual ESG Green Finance Awards, 4 from Global Finance's Sustainable Finance Awards, 2 from international business magazine awards and 1 from the Asset's AAA Sustainable Finance Awards. We listed the institutional awards and recognitions garnered by BPI here from reputable foreign and local award-giving bodies. So finally, in summary, on profitability, we delivered a 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. We have sufficient allowance for credit losses. And finally, we further strengthened our leadership in digital and sustainability banking. Overall, we are very encouraged by our operating results for the first quarter. While risk and uncertainties remain, we are confident that the bank is well positioned to perform within our operating environment to deliver growth and enhance shareholder value. Thank you, and we will now open the floor to questions.

Thank you, Eric. Give us -- for the audience, give us a couple of minutes as we position our panel here in front. So may I call on TG, Eric as well as Ginbee Go, our Head of Branch -- Consumer Banking; Tere Marcial, our Head of our Private Wealth business; Jenny Lacerna, Head of our Mass Retail Products; Dino Gasmen, our Treasurer and Head of Global Markets; Boyie Sarte, our Head of the Payments Council and Louie Cruz, who heads our commercial banking team. Okay. [Operator Instructions] For the benefit of everyone attending this call, we would like to encourage you to ask your questions during this session. We have 1 question here online, we'll start with this. Maybe confirm if the bank's comfort level for NPL cover could fall below 100% or is 100% maintained as the minimum threshold. This is from Michaela Ng of Papa Securities.

Michaela, I think what you have to do is to take a look at the way the NPL cover as a bank-wide NPL cover gets calculated. I think looking as a single number, just like the way we've messaged that, a single number for NPL for the whole bank does not make sense. A single number for NPL cover for the whole bank does not make sense. And that's why we present the NPL cover per product line. And what happens is that we decide what kind of NPL cover is appropriate for each product line. And based on the share of that product line to our total portfolio, based on the NPL levels of the total portfolio and where we desire the NPL cover to be, the resulting figure NPL for the whole bank is just an offshoot of that. So if you take a look at what Eric presented, most of our corporate loans, our corporate portfolio have NPL cover of over 100%. In fact, corporate loans have 125%. I will argue that even that is overcovered, I would take a look and say, "Look at our business bank. That's about 100% NPL cover. Take a look at our mortgage book. That's about 30 -- 22% covered, 23% covered." And that's there because we're secured by home mortgages, right? And take a look at our auto portfolio. That's about 70% NPL covered, which basically means with that kind of cover, we can take a 30% loss in every NPL -- every loan that goes bad, which is appropriate for that kind of business. The way I would say, Michaela, is to take a look and say, if you were running a business, for example, if you're running an institution that only did auto loans, where every loan you gave was secured by an automobile that you could foreclose and that you would be able to resell at some potential loss, would it be appropriate to even say that you needed NPL cover of 150% for that portfolio? And I would make the same argument for a mortgage book, a home mortgage book. You certainly don't need 100% NPL cover for a mortgage book. So that's the way we look at the way -- that's the way we look at NPL cover for the bank. The 100.11 total NPL cover for our whole portfolio is just as a result of the different portfolios that we have. And I hope that helps investors and analysts understand the way we think about our provisioning, the way we think about our NPL cover. The other way to look at it also is to ensure that when we run our models, our expected credit loss models, ECL is a forward-looking model. And the one thing we want to take a look at also is do our current allowances cover our ECL. And today, our ECL is -- our allowances are about 6% higher than our ECL, our projected -- expected credit losses. So even that as a term that I'd like to use as what I would call our ECL cover in -- to complement our NPL cover. Our ECL cover is about 106%, and that's forward-looking. It says that we have enough provisions to cover 106% of our expected losses from credit in the next 12 months.

Okay. Thank you, TG. May I ask the audience here on site, if there's anyone with a question before I move to the other questions online? DA, go ahead.

DA here from JPMorgan. Just a follow-up first on the asset quality side. Before the NPL cover, I want to understand the NPL formation in this quarter and the sources of that.

Most of the NPL formation in the first quarter came from our consumer book, so auto, mortgage and credit card and personal loans. So I think if you take a look at our net NPL formation for the quarter, it is PHP 3.4 billion. Close to PHP 3 billion came from those 4 areas.

Okay. Understood. And in terms of cover going back to this, based on what you're saying, as these books continue to grow, should we then expect the cover to move below 100 in the next few quarters, for example?

If they get to be larger than -- if their share becomes larger relative to their current share today to the total portfolio, and if we decide we want to be -- and the cover to be lower. So our target cover for mortgage is probably like a 25%. A target cover for auto is probably 70%. I would argue that our cover for credit cards is at 140%. It's a little too high, right? And so that's the one we have to take a look at. So can I tell you whether it will be 95 or 100? It depends on what the NPL rate of [indiscernible] to the other products.

Okay. And in this context, is there a floor that you're looking at that you won't let the cover go below?

For which product?

For the overall...

No. See that -- DA, that's the fallacy in the thing. You can't have a single number for the whole bank. You could have a single number if we were only a mortgage bank. You could have a single number if we were an auto bank. But we have, how many 1, 2, 3, 4, 5, 6, 7, 8 different product lines, right? And so saying that there's a single number will be wrong because, then, that says we're going to tie our product mix to say we'll do commercial loans have to be 70%. We can't exceed. And we're not. We're going to grow every product as fast as possible, but try to keep the NPLs for those products at a manageable level based on the risk-adjusted returns.

Okay. Understood. And in line with that, any guidance on credit cost that you're looking at for this year?

I think -- so the -- our initial quarter, we were looking at 54 basis points in terms of credit cost. I think, generally, it's in the range that we're looking at. It may tick upwards, but we'll have to see how the year progresses, right? Obviously, there's a lot of uncertainty related to this year. But so far, I think we're roughly in the range.

Okay. Understood. And just since you referred to it already, I want to understand your growth outlook for the year across different loan segments and the impact of tariffs. Do you see that? And any impact to the outlook?

So maybe I'll ask Louie first to talk about what they see on the institutional banking side because that's about 70% of our book, and then very quickly to Ginbee for mortgage and auto, the card business from Jenny and then business bank from Ococ.

Thank you, TG. On the corporate side, how we do this every year is that we identify all the industries that we see positive and where we plan to support. And so far, what we have is that the pipeline that we have is quite healthy, given that we have the project finance, the CapEx. And of course, we focus on transaction facilities. And by doing that, we're able to -- there's some headwinds about interest rates, about the tariff issues, but focusing on transaction facilities, we are able to identify specific contracts and cover that with the specific needs of type of facilities. While on the project finance, these are opportunities already on hand, and the issue on interest rate is not something that they will delay. But we will just have to properly structure them to address that or mitigate that issue on interest rates. So overall, in the corporate finance or institutional banking side of corporate loans, the pipeline is quite healthy, even the headwinds, but corporate clients are looking at it and mitigating it accordingly based on interest rate or even hedging if needed.

So his outlook on loan growth is?

12%.

DA, our outlook remains to be more conservative than our current trajectory. Our outlook is about 10% to 12%. You've seen the auto sales. You may have read that auto sales in the first quarter is about 7.8% growth. But our auto loans portfolio is growing by 19%, 20%. And so we remain bullish on the outlook for auto. The other thing that I also mentioned the other day to the media is that we see opportunities in the EV hybrid financing. There's really greater awareness on sustainability in general in the country. And with the entry of more sustainable vehicles and car manufacturers, particularly from the more affordable brands coming from China, we see that as a growth area for the auto sales and financing category. On the mortgage, we also are still bullish. I know that there is an outlook on the [ clock ], but these are for current sales, what we're financing, our sales that happened 2 to 3 years ago, which means that we are financing previous growth. And these are end buyers rather than investors. About 90% of the time, our loans are to finance purchase homes for occupancy rather than investments. So that tells you that this is really for real need. And we see opportunities as well in the provincial areas. I think I mentioned this the last investor's briefing wherein we see opportunities in urban areas outside of Metro Manila and up and coming areas and also in the middle income. And that's why we're also very bullish when it comes to providing more affordable financing on both auto and mortgage. Having said that, we remain, again, bullish on our ability to grow our housing loan books by 10% to 12%. We have seen the power of the depositor base of BPI. And I think I did mention this also, we continue to harness that value. 80% of our borrowers are existing depositors, and that will remain to be the major source of our growth.

Thank you, Ginbee. For consumer loans, PL and credit cards, the first quarter growth is, in fact, still very healthy. Same growth as what Eric showed in the 2024, 2025 growth. So we still remain optimistic. Though with inflation slightly increasing a bit, we are forecasting from a 30%, maybe a bit 26%, 27% for the end of the year. But personal loans continues to be strong. We have onboarded teachers loans through the merger of Robinsons Bank. And that's actually fueling a lot of opportunities for us on the teacher segment. And personal loans for personal consumption is still also very healthy. First quarter numbers is still as strong as 2024. So we still remain optimistic on the consumer and on personal loans and credit cards, it being driven by essential purchases and travel. Travel is still very strong as we've seen in the first quarter.

Just to confirm that 26% or so is across the 3 segments.

No. That's actually for credit cards. PL would still be about 30%. So -- and that's because teachers loan is a very big opportunity for us, and it's part of our personal loans portfolio.

And just to confirm as well, just across segments, no impact or changes from tariffs at this point.

I think -- well, I'll let Ococ finish, and I'll summarize everything, DA.

Yes. In the case of business banking, and we cover SME lending, we're still very bullish with the market. And the drivers really are one. There's a huge untapped, unmet demand for financing in this segment. By estimates, it's about 1/3 that is only being met, and banking -- the banks are, in fact, considered a minority in this funding. This year, we aim to punch through a 10% market share versus banks. And we're hoping to do 50%, and we're on track based on first quarter performance for this year. Other drivers would really be data and technology, data because we rely on data to create lending programs, lending programs that increase the lead sites and then point us to the subsegment of this market that will have the higher propensity to avail of our facilities. The technology is -- we're harnessing the -- we're leveraging technology for our acquisition. We have launched in the -- last year, we've launched Ka-Negosyo On The Go, which is our micro site.

Yes. So DA, just to summarize, and I think this is maybe my view rather than the view of the different businesses. I think the tariff issue will cause some concern, particularly on the large corporates. And therefore, when Louie has 12%, I'm very happy with that. I think there will be a little hesitation in the near term, which will cause some dampening. So I would be happy if our commercial -- institutional banking could grow 10% this year, to be honest. But everything else, on the consumer side, on the unsecured lending and on the business bank, I think you can see those kinds of levels. You can see 20% for auto. You can probably see 12% for housing. Credit card business, you'll probably hear about 25%. Personal loans, maybe 30%. And then Ococ, as he says, he's hoping to punch 50%, and his first quarter is double that.

Thank you, TG, DA. I think still on the topic of loans, there's a question here from Yong Hong. How are the sentiments for businessmen to continue with their expansion plans? What are the key concerns they have? And are they willing to look past the macro uncertainties? I think Louie, this is for you.

Thank you, Chinky. For -- on the -- with the headwinds on the corporate side, let's say, for exporters and manufacturers, we've been hearing about clients really looking other alternative markets given the tariff issues. That's one. Second, even the possible supply chain disruptions. So clients are talking about it, opening up, starting to discuss other opportunities given -- assuming these headwinds really persist. At the same time, what they're looking at is really trying to have scenario planning, given that what happened in -- during the COVID times wherein operations really stopped. But this time, most of the companies are quite open and really preparing for scenarios, just in case. That's why they're looking for alternative markets, looking for new suppliers. That's one. And on the expansion side, we see -- as mentioned, we see the project finance really persist. It will really proceed as planned, given the opportunities already there. So how we're mitigating that is really on the -- on how to structure the project finance. Well, in the CapEx side, that's where we see some quote or temporary further discussions given that it might really affect their expansion. So that's how we see it on the CapEx side. Well, on credit facility side, especially, we're focusing on transaction facilities. That's where we see -- we still see the growth, and utilization is still quite healthy given that it's covered with specific contracts or service agreements. Thank you, Chinky.

Thanks, Louie. I think this one is a more general question. How much more could you push LDR higher with the recent RRR cuts? And how should we be expecting NIM to trend into the rest of the year?

I think what we're doing is being very deliberate about our funding. For example, we went out and tapped the markets, raised close to maybe PHP 45 billion through the U.S. bonds, which I think Dino will be using for our FCDU book as well as swapping into peso funding. We realize that there is competition for deposits, but it's a lot more muted today than it was, say, 6 months ago. There's a lot of liquidity in the market. So there really is no reason to go out and chase those time deposits. Our view has always been that with our distribution network and our name, it's very easy for us to raise funding if we wanted to. So we will try to keep LDR as high as possible to be more efficient, to generate those kinds of spreads going forward. The team is also very deliberate in pricing of our loans. We are not out to chase market share for loans at unreasonable rates, given that the BSP has a very clear benchmark where they want rates to be at 5.5%. And so we are willing to walk away from clients who are able to get loans below 5.5% because most of these loans are only 30 days, and these sophisticated clients are just going to come back when you give them the right rate or when the rate is superior.

Thank you, TG. We have a question here in the chat box related to our QR code-based payments. Could you help us understand if this is a closed loop system? Should the merchant also have a BPI account for this payment mode to work? Or is this a platform across banks? Is this free for users and merchants? Or do you charge a take rate on this service?

Who is asking the question?

Tej Kiran.

Okay. No. The QR system is basically based off the InstaPay. So QR Ph is a national system. We are using the InstaPay rail to deliver it. The business model here, just like the business model of every other bank and every other fintech is we provide the QR to the merchant, and that QR can be used by any app, any wallet, any bank to pay. The payment goes into the bank account of the merchant with the provider of the QR code. So if it's a QR code that is powered by BPI, then it goes into a BPI account. Our thought here is that we have dropped our fees there, our merchant discount fees for the QR, because we just want the deposit. Knowing that we have the deposit from the merchant, knowing the merchant's cash flows, we are then able to provide the merchant with other services such as payroll, loans and everything else. We just want the relationship with the merchant. There is no fee to the customer paying the merchant. And in many cases, the fee to the merchant is free initially and then a very low fee after that. So our success there is we're probably now, I would say, maybe the fifth or the sixth largest acquirer already. It's a very small market yet today. People still have to take up to it. But our view is that I think this is one of the -- this is going to be a major business going forward. And the advantage of BPI is that the money ends up in the account that they wanted to. If they were to go to a fintech to do it, it would land in the fintech -- with the fintech and the fintech -- the client will then still have to move from the fintech to a bank, right, which we've seen with many clients, when I asked them, why are you using such and such QR.

Thank you, TG. We'll take a couple of questions from our participants online. Selvie Jusman. Selvie, are you there? Selvie? Okay. We'll get back [indiscernible] [ Benjamin Tan ].

Can you guys hear me?

Yes, we can hear you.

I have a few questions here. I'll just ask them one by one. So the first one is a very quick one. I think your NPL formation is higher this quarter at around 1% annualized. Is this the new run rate that we should be expecting?

Yes. I think -- so there were a couple of kind of technical issues on the NPL formation in the first quarter. But -- and so we net that out probably about PHP 0.5 billion worth. But other than that, I think we're probably trending towards that. The -- I have to admit, we are in a year -- or a period of higher uncertainty. So it's a little higher -- it's a little tougher to predict. But I think it's -- that's relatively -- we should be thinking out that -- about PHP 0.5 billion, we should be looking for that for the rest of the year.

All right. Okay. So the second question, I think overall NPL ratio for the bank is higher. I understand that part of it is due to the loan mix shift towards the non-EC segment. But if you look at the NPL ratio of business banking and by the different product lines for the retail segments, they're also higher on a Q-on-Q basis. Just wanted to understand whether this is because BPI is taking more risk, i.e., going out to more riskier customers? Or are we seeing a general weakness among the retail segment?

I think one quarter is a bit premature to be making conclusions in terms of the trend. If you look at it on a year-on-year basis, we see business banking is actually lower. Although some of the other -- I mean -- so it's a bit more uneven, but -- and I think that's where we are, right? It's a bit uneven. It's a little early to be saying we're heading in this direction for the remainder of the year. I think we all know that the global situation has a lot of uncertainty, and there is some uncertainty on how that is going to affect us. Even though we think on a relative basis, the Philippines will be less affected than many of our regional neighbors, there is also a fair amount of uncertainty on how things are going to pan out here. But I think if you look at the performance that we've had in the first quarter, it's probably in the range of what we would expect the rest of the year to look.

And if I can add to that, I think it's really a combination of both. We are being very deliberate about wanting to expand our markets. So for example, in cards, I think we are taking a little more risk. I think in auto and mortgage, we are taking on more risk. We have products in mortgage, which are much lower end. I think in business banking, our expansion there is really driven by tapping new markets, existing clients to the bank, but who had never borrowed before. It's not like people are borrowing more. So we are expanding our market, so we are taking a little more risk. And I cannot deny that in this current situation, there is a little higher, I guess, default given the situation. I hear it from my peers in the other banks that there is a little uptick in what I would call same client performance going forward. So it's a combination of both, to be honest.

Okay. Great. My third question -- second last question is do you -- will you be able to share a number like what's your direct exposure to the trade sector, exports and imports?

Maybe we can get back to you on that. I don't have the number right -- with me right now.

Yes. No worries. Okay. And my last one, will you be able to share NIM guidance for the rest of the year?

I think, generally, if we continue to see the migration of the loan mix favoring the noninstitutional side of the book, that would be NIM supportive, right? So that would help drive NIMs -- continue to drive NIMs higher. That, combined with the fact that we have had another RRR cut, which is not reflected in the first quarter performance because this year's cut came on March 28, so not enough time to really impact the first quarter. But we'll see that impact through the rest of the 3 quarters to come. That -- so those are the ones moving it up in favor -- in our favor. But of course, how much policy rates come down will also affect that on the negative side. But overall, we don't have a specific number that we're going out with. But overall, it looks -- the year looks to be NIM supportive on balance.

Any follow-up questions, Benjamin? Okay. If not, I will proceed to Selvie's question. He has just a couple of questions. Is there room to convert time deposits to CASA? That's her first question. Her second question, which segment are the NPLs which has started to form, but can't be upgraded to performing under BSP's classification? And third, could you share the challenges to grow in microfinance versus personal unsecured loans given that the default rate in microfinance seems to be lower and, therefore, it might be attractive to grow microfinance?

I'll let Ginbee take #1, which is the conversion of CASA into -- sorry, time deposits into CASA from a deposit product thinking. And then from her, I'll ask Louie to talk about our initiative to generate CASA from existing clients, not converting their time deposit but getting more of their working capital on the corporate side. And then I'll come back to me, then I'll figure out who will answer the next questions.

Okay, TG. Is there room to convert time deposits to CASA? The market for time deposits -- or the segment for time deposits, it's really very different from the CASA market. And you've seen that in the presentation of Eric, wherein the CASA growth is really coming from the mid-market and the core mass market. Affluent segment, including private wealth and institutional banking are really after yields. And therefore, time deposit becomes an attractive option. However, given that with certain segments, if you continue to break that down, it's not that they would convert from time deposit to CASA. What we're doing now with advisory is making them look at alternative products if they want yield, and that is investment. And you will see the growth of our investment books very, very aggressively, and we're working with Tere's team on that with wealth management. It's really from time deposits to investments, and there are more alternatives now. And it's not just the usual UITFs and mutual funds. We have new products and investments that would allow us to tap the more conservative investors or the moderately aggressive investors, such as the new wealth builder. Then we have new issuances and new corporate bonds that our BPI Capital is also underwriting. So we look at it from a total advisory standpoint. And it's not time deposit to CASA. It's more of time deposit to alternative investments.

Clearly, the question here was how do we get more CASA. And if you look at our CASA book, 75% of our CASA book comes from the retail market. And practically, all of that comes from the affluent segment. Although we have a very fast-growing mass market and the low end with mid-market, which is growing over 100% a year. But the challenge going forward is to try to get -- to grow the share of the institutional business in CASA. That's about 25% of our CASA today, and that is one of the challenges that we are working on this year. And maybe I'll ask Louie to talk about some of the initiatives we have on that front.

Thank you, TG. Okay. On the corporate side, first, there's 2 segment groups, the commercial banking and corporate banking. On the corporate banking side, we focus on our relationship with anchor clients. And from the anchor clients, that's where we build the whole ecosystem. And one ecosystem that we're building is a supply chain -- or supply chain financing. Right now, with the -- with Robinsons Bank with the merger, we have about 15 anchor clients and about 370 suppliers already connected within that system. And by doing that, you generate your whole transactions, the throughput within that whole transaction. So that's one approach that we're looking at to generate more CASA on the corporate banking side. Well, in the commercial banking side, it's quite diverse. You have Metro Manila. We -- basically, we will focus on the entire relationship, not just on the business itself. These are basically also your suppliers or in -- even the distributors. So again, we will focus on those transactions to generate the flow and the deals, again, to capture that whole ecosystem on that side. So if you tie up the whole transactions of commercial banking and corporate banking, basically, you're creating that whole ecosystem, creating an increase in throughput. But also worth mentioning is, let's say, outside Metro Manila, though we definitely push digital, you have issues on some of them really going still on cash basis. So how we approach that is that we focus with our third-party partners together with Agency Banking to cover that cash collections in case we don't have a presence in that area. So basically, these are our strategies -- some strategies in the corporate side to generate more CASA. Time deposit, it's rate driven, so it's something that for most corporates, it's something that it's towards end of the year. But our focus really is increasing throughput and focusing into transactions. And from there, we tie up the whole CASA generation.

The whole secret of generating CASA from the institutional business is to be able to capture their payments flow. And I think one of the biggest successes and one of the biggest things that we achieved by merging with Robinsons Bank is learning from the way Robinsons Bank did it with the Gokongwei Group. So maybe at this time, Boyie Sarte who used to run Robinsons Bank was responsible for bringing the whole ecosystem of the Gokongwei Group into Robinsons Bank and now runs our payments council here. Maybe Boyie, I will ask you to say a little more about our plans on payments and corporates to generate their CASA. And then we'll go to Eric who will talk about the movement from performing, nonperforming.

Yes. Thank you, TG. Realizing that low-cost funding is important that, therefore, CASA, one of the play that we are now focusing is also on payments. And payments is both consumer and corporate. So moving forward, that's where the payment council of BPI was formed to look into various products and services that we can introduce to the market and not only capturing transaction and helping our customers on the consumer side, but also targeting the customers of Louie and capturing payments, whether domestic or cross-border. We're not ready to announce formally what services we are introducing, but there's a lot of work behind this. And hopefully, we increase transaction flow, fee income and also deposits.

So you can see this is very important for us, the payments and to generate CASA. And so now question number 2 is how we move from...

Which NPLs has started to perform, but can't be upgraded to performing under BSP classification?

Yes. So the majority of -- as I mentioned, as I showed on my slide, our total NPLs is 51 plus. Our net of this performing, nonperforming is 46. So that leaves about PHP 5 billion worth of what we call performing NPL, which means that the loan as -- that customer is now paying on agreed loan terms. And this may be restructured or they may just start to pay along the original loan terms. But in any event, they are now paying according to a pre-agreed payment plan. And -- but they have to do that for 6 months consistently before we can take them out of the NPL. The type of customer that is in this category is predominantly a corporate type of customer. And so if you're asking where it is, that -- it's mainly in the institutional book, much less in the noninstitutional book. So that -- but it's not in any one sector of institutional that it's focused on. It's just within the institutional book.

Sorry. Maybe Jenny take the last question of Selvie which is, do we focus on personal loans or microfinance? Or why do we do one and not the other? Or should we focus on one or the other?

Actually, we're focusing on both, and both have different purposes and different target markets. So personal loans really are for planned purchases. It could be a wedding. It could be a renovation. While the microfinance really is for small, medium enterprises to be able to grow their business, to be able to extend more locations where they want to do business, to expand where they need to expand. So we're actually growing both because, really, both serves different purpose and targets 2 different types of customers.

Thank you, Jenny. We have one more question on NPL formation from Anupam Mathur. Any particular segment we are seeing concerning trends and derisking?

I can take that. So if you look at the first quarter NPL formation, as was mentioned earlier, we're seeing it more in the first quarter based on the consumer book. But it's, again, in line with our expectations. Corporate, we didn't see much new NPL formation there. We didn't see as much new NPL formation there. But I think -- overall, I think we're still very comfortable with the performance of the consumer book overall.

Okay. Thank you, Eric. Still on loans, I think we answered this partly, but the question anyway is, what is your take on the credit offtake in the country in Q1 and going forward?

I think we have answered that already, I think, when we talked about our outlook.

Okay. We have a question here from Michaela Ng. What was the reason behind the 100 basis points quarter-on-quarter increase in CET1 ratio to 14.7%?

The primary driver here was really income accretion, right? So we did make good money in the first quarter, and that boosted our capital. And so that was the primary driver for capital accretion in the first quarter. There were some other factors, some movement in the loan book and the risk factor in the loan book. But the primary driver was really income accretion.

We have a question on NIMs. Are we happy with the current risk adjusted NIMs for the different lines? Or are there areas where we prefer to grow faster with a little lower return? Is there a preference in competing via rates or credit quality?

I think where we will continue to push and take more risk is probably the cards business, unsecured lending. We have big ambitions over there. I think the risk adjusted returns are still fairly rich there. I think business banking has a lot of potential there. I don't think we're necessarily needing to squeeze our margins, but it's just finding more opportunities and using data to tap our existing depositors who we know are businessmen who have never borrowed before, but can use our services to grow their businesses. I think there's also potential in the consumer side. Motorcycles, in particular, is a market that we're just beginning to tap.

Okay. I have no more questions online. May I check with the audience here on site if there are any additional questions? None. All right. Then that ends our Q&A session. I would like to thank everyone as usual, for your participation. Before we end the call, may we call on TG for his -- for some final thoughts?

Thank you very much, and thanks to everyone for joining this call and for the quite spirited discussion on our results. A couple of points I want to make, the first being that we continue to stress the ability for our bank to be transparent, and we give more and more data about our business because we want people to understand what is driving our strategy and our aggression into the consumer markets. And therefore, we want people to understand our thinking behind our provisioning. We want people to understand our thinking behind the kind of risk taking that we are making on the consumer side. We believe -- we continue to believe that the consumer market in the country is fairly untapped, and there's a lot of potential. And an institution like BPI with our name, with our reach, particularly through our branch network, our digital channels and our Agency Banking has that reach to be able to bring more and more people into financial inclusion. The second thing I do want to stress is the fact that we continue to be executing on our strategy on target. If you take a look at our earnings, we probably -- people don't see the very strong growth in revenues that we have. Our revenues continue to grow faster than our expenses. As Eric said, our expenses, we feel are fairly stated for the quarter. We've been very deliberate about booking things on time already. And despite the 12.7% growth in our expenses, our revenues continue to grow higher than that. Our net interest income grew in excess of 15%. We did suffer on the trading side given the variable markets. But fee income continues to grow at 15%. And when the markets return, I think we can continue to see our revenues grow 15% to 20% consistently going forward. So I think that's the potential that the bank has. We take a look at our performance from a pre-provisioning operating profit level. We are one bank that continues to grow on that segment and to grow our net income after provisions -- net income after tax, despite us increasing our provisions going forward. We are deliberate. We do watch our NPL cover. We do watch our cover to our ECL. One is historical, and one is forward looking. And we hope that people begin to appreciate the kind of transparency that we have. Happy to take more questions on the side, and I want to thank Chinky. This is her last investor briefing. Chinky taught me everything I know about insurance. So thank you, Chinky, for your dedicated service.

My pleasure, TG.

And thanks to everyone for participating in this call, and thank you to my colleagues for the support, as usual.

Thank you, TG. Thank you, Eric. And thank you to the BPI leadership team. This concludes today's earnings call. Thank you all for your participation. And to those joining us online, you may now disconnect. To those on site, we have some refreshments here. Thank you.