Latest / Investor Exchange / Bank Of The Philippine Islands Q3 2025 P50.5B Profit Surge Revealed

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Bank Of The Philippine Islands Q3 2025 P50.5B Profit Surge Revealed · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  If you're looking for, well, a masterclass in how a major bank navigates growth
• 0:12
  risk and all that macroeconomic pressure, you really have to look at BPI's latest numbers.
• 0:17
  Oh, absolutely. The first nine months of 2025.
• 0:20
  Yeah, we're talking about a net income hitting, what was it,
• 0:23
  a whopping P50.5 billion. And that's the thing.
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  That P50.5 billion headline, it looks fantastic. It's a solid 5.2% year-on-year growth. It does.
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  But our mission today for you is to go beyond that. We need to get into the
• 0:38
  mechanics of it. You know, where did that huge revenue come from?
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  Why did costs jump up? And I think this is critical.
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  How are they deliberately managing a rise in credit risk? Exactly.
• 0:48
  That's the real story here. We've got the SEC filings, the management reports,
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  and they all point to the strategy of calculated risk taking.
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  And the initial snapshot shows it wasn't just the net income.
• 0:58
  The real firepower was in the total revenue. Right. P-142.3 billion.
• 1:03
  Which is a jump of 13.2% year on year.
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  I mean, you don't get double digit revenue growth like that without a really
• 1:08
  powerful engine running underneath.
• 1:10
  Okay. So let's unpack that engine. If BPI is a race car.
• 1:14
  Than its net interest income, the NII, that's the turbocharger.
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  For the first nine months, NII just soared.
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  It was up 16.2% to P109.1 billion.
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  That is, without a doubt, the main driver of their profitability.
• 1:30
  And the best way to check the health of that engine is the net interest margin,
• 1:33
  the NM. The spread, yeah.
• 1:35
  Exactly. The difference between what they earn on loans and what they pay on deposits.
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  And we saw a really solid expansion there. It was up 30 basis points to 4.60%.
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  Which tells you the margin is successfully widening.
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  And what's fascinating is that the growth wasn't just from more volume.
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  It was from better pricing. So getting more efficient. Very efficient.
• 1:54
  Their core lending business, so interest income on loans, that grew by 15.4%.
• 1:59
  And they say it's because of higher volumes and improved yields.
• 2:03
  So they're lending more and they're charging better rates for it.
• 2:05
  Precisely. And on top of that, they saw great returns on their investment portfolio,
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  So specifically those financial assets that are measured at fair value through
• 2:13
  other comprehensive income. Right.
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  The income there was up 22.1%. That's a huge boost.
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  It shows they're making some very savvy moves on the asset allocation side. It does.
• 2:23
  But as we dig in, there's a really interesting detail in the data that shows
• 2:26
  where the bank is choosing not to put its money.
• 2:29
  I think I know what you're talking about. The deposits with the BSP and other
• 2:32
  banks. Exactly. Their safest, most liquid placements.
• 2:35
  That income actually fell. It fell by 31.6% over the nine months.
• 2:41
  Wait, a 31% drop in income from the safest possible assets. Why on earth would a bank do that?
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  Because they see better opportunities somewhere else.
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  The report explicitly says it was due to lower average asset volumes.
• 2:56
  Meaning they pulled money out. They pulled money out.
• 2:58
  They're essentially saying parking our cash safely with the central bank isn't earning us enough.
• 3:02
  Yeah. It signals a very proactive reallocation of capital. So they're taking
• 3:06
  funds from those risk-free assets and pushing them into their core lending products.
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  Where the yields are much, much higher. Okay, that makes sense.
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  It's capital optimization.
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  But let's look at the flip side of NII, the expense side.
• 3:17
  Right. To fund all this lending, they have to borrow money themselves.
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  And we saw their interest expense go up by 8.0% to P49.50 billion.
• 3:26
  Absolutely. And the biggest pressure point there was on bills payable and other borrowings.
• 3:32
  That number spiked 28.5%. Oh.
• 3:35
  But again, this wasn't a failure to control costs. It was a deliberate choice. How so?
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  The increase was mainly because of higher volumes from new bond issuances.
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  They went out to the market, raised a lot of capital, and that's what's funding
• 3:48
  the loan growth. It just comes with the natural cost of higher interest payments.
• 3:52
  Okay, so the core interest engine is booming because they're taking calculated
• 3:55
  risks. Let's look at the operational costs then, the cost of just running the machine.
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  And this is where the story gets a bit more nuanced.
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  Operating expenses, OPEX, rose pretty significantly, up 10.3%,
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  the piece $65.5 billion.
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  10% growth in spending, that does sound high. Is that sustainable?
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  That is the critical question. A 10.3% jump is steep, but management gives a
• 4:18
  pretty clear breakdown of where that money went. It's not just fat and waste.
• 4:21
  Not at all. It's mostly in areas that support future growth.
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  So expenses related to higher business volume, more headcount to handle the
• 4:30
  activity, salary adjustments. And this is a.
• 4:34
  One significant investment in tech and equipment. I did see that detail.
• 4:37
  Occupancy and equipment-related costs were up over 11%, so they're clearly pouring
• 4:41
  money into modernizing the bank. They have to.
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  But how do you justify that kind of spending without looking inefficient?
• 4:48
  Through the cost-to-income ratio. Exactly. That's the ultimate metric.
• 4:51
  Despite OpEx rising by over 10%, their total revenue surged by 13.2%.
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  So revenue growth was still faster than expense growth.
• 4:59
  Much faster, which means their cost-to-income ratio actually improved.
• 5:03
  It got better by 118 basis points, closing at a very respectable 46.0%.
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  So they spent more, yes, but they earned so much more efficiently that the whole
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  operation became leaner.
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  That is a real efficiency win. It absolutely is.
• 5:16
  Now, let's just quickly touch on the other revenue streams, non-interest income.
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  That was also up, though not as dramatically as NII.
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  It grew 4.2% to P33.3 billion.
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  And where did the big contributions come from there? Mostly from fees.
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  Other operating income jumped 12.5 percent, and that was largely for more credit
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  card transactions, and we'll come back to that segment, and trust fees. Okay.
• 5:39
  Plus, their trading gain on securities was up 13.5 percent for the full nine-month period.
• 5:44
  But I noticed that if you just isolate the third quarter, that trading gain
• 5:47
  actually flipped. It showed a 20 percent decline year-on-year for Q3.
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  It did, and that's a perfect example of market timing.
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  Management just said that they had a much higher volume of sales in the prior
• 5:59
  year, which made the comparison look weak.
• 6:02
  So a tough comp. A tough comp. The key thing for you to see is that the nine-month
• 6:05
  trend is still very positive.
• 6:08
  All right, now we get to what I think is the heart of BPI's strategy,
• 6:11
  the balance sheet and the credit picture.
• 6:13
  This is where those aggressive moves start to show their calculated downside. Hmm, the trade-off.
• 6:19
  Total assets climbed to P3.5 trillion, up 9.3 percent, and deposits grew 7.7 percent.
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  And the driver on the asset side was lending. Absolutely.
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  Gross loans expanded robustly to P2.4 trillion, up 13.3 percent year-on-year.
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  And this pushed their loan-to-deposit ratio up to 90.3 percent.
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  They're putting that money to work. And the report specifically said this growth
• 6:43
  was fueled by non-institutional loans.
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  Let's be clear what that means. We're talking consumer loans,
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  smaller businesses, the middle market.
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  Exactly. The kinds of loans that carry much higher yields, but also,
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  you know, significantly more risk than lending to big, stable corporations.
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  And that strategic choice shows up immediately in their credit quality numbers. It does.
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  The non-performing loan ratio, the NPL ratio, closed the third quarter at 2.3 percent.
• 7:08
  Which is an increase. And that immediately took off some warning bells for a
• 7:12
  lot of analysts. It would, but BPI is effectively owning this result.
• 7:16
  They're not hiding from it.
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  The management analysis points
• 7:18
  directly to this being driven by the credit risks of consumer loans.
• 7:22
  So credit cards, auto loans, that kind of thing. Yes.
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  Credit cards, personal, auto, housing loans, and smaller corporate loans.
• 7:30
  And they say, and I'm quoting here, that the NPL increase is consistent with
• 7:34
  the bank's strategy to expand and further tap these products and segments.
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  So they're saying, yes, we know the risk is higher. We want that risk because
• 7:41
  the reward is also higher. It is a textbook, high risk, high reward play.
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  They are willing to accept a higher default rate for much fatter interest margins.
• 7:51
  OK, so if they're strategically taking on more risk, what was the immediate
• 7:54
  financial consequence?
• 7:56
  How much did they have to set aside for these expected losses?
• 7:59
  This is the number that just it just leaps off the page. OK,
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  what is it? Impairment losses.
• 8:03
  The money set aside for expected credit loss. Right. They surged an absolutely
• 8:07
  enormous 144.8 percent.
• 8:11
  145 percent. Yep. They set aside P11.75 billion for the nine months.
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  That's up from P4.8 billion the year before.
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  They are acknowledging that the expected cost of default on this new strategy
• 8:23
  is more than double what it was last year.
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  That is a staggering jump in provisioning.
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  But they must have good coverage, right? You don't make a move like that without
• 8:31
  building a cushion. You'd hope not, and they did.
• 8:33
  Despite that massive surge, their NPL coverage ratio finished at 96.5%. So very prudent.
• 8:40
  They're taking on more risk, but they're also making sure they're heavily provisioned
• 8:44
  against it. Which brings us neatly to their capital and overall risk structure.
• 8:49
  Even with all this, BPI remains incredibly robust. Their capital base is solid,
• 8:54
  with total equity nearing P-475 billion.
• 8:58
  And the regulatory ratios are still well above the minimums. Impeccable.
• 9:02
  Capital adequacy ratio is 15.8 percent, and the CET1 ratio is 14.9 percent.
• 9:08
  Both are way above what's required, giving them a huge buffer.
• 9:11
  But here's where the cost of that huge impairment provision really comes home
• 9:14
  to roost. We've seen incredible revenue growth, improved efficiency.
• 9:18
  But the core profitability ratios actually dipped a little.
• 9:22
  That's right. Return on equity ROE went down from 15.90% to 14.96%.
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  And return on assets ROE also took down.
• 9:29
  From 2.07% to 2.02%. So why the decline during a period of record revenue?
• 9:34
  That right there is the punchline to this whole deep dive.
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  The drop in ROE and ROA is the immediate direct cost of this new strategy.
• 9:45
  Because of the provisioning. Exactly. The bank's average equity in assets grew
• 9:49
  faster than their net income because that massive P11.75 billion in impairment
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  provisioning acts as a drag on profitability.
• 9:58
  So they're absorbing the cost of credit now to secure those higher long-term
• 10:01
  yields later. It's the upfront investment for future growth.
• 10:05
  And beyond credit, they seem very focused on managing other threats. Like cybersecurity.
• 10:10
  Yes, they specifically highlighted the evolving cyber threat landscape.
• 10:14
  It's not enough to just write off bad loans. You have to defend the entire digital ecosystem.
• 10:18
  And their investment sounds pretty granular.
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  A 247 Cybersecurity Operations Center, or SOC, and quarterly simulations of
• 10:26
  phishing attacks on their own employees.
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  Which explains part of that rising OPEX. It's not just buying firewalls.
• 10:32
  It's building a culture.
• 10:33
  And externally, S&P Global Ratings reaffirmed their BBB Plus rating with a stable outlook.
• 10:39
  Which is on par with the Philippine Sovereign Rating. That's a strong vote of confidence.
• 10:43
  A very strong signal. And they're not just defending, they're expanding.
• 10:46
  They just opened BPI Wealth Singapore in October, which confirms they're looking
• 10:51
  well beyond the domestic market. Okay, so let's put a bow on this.
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  BPI delivered a first nine months defined by really extreme success,
• 10:59
  powered by that robust net interest income generation and strong operational efficiency.
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  But, and it's a big but.
• 11:08
  That success was tempered by a clear, calculated trade-off. The 145% surge in
• 11:13
  impairment provisions.
• 11:14
  Exactly. And the subsequent dip in ROE and ROA. That is the explicit price they
• 11:19
  are paying for their aggressive, high-yield expansion into consumer and SME lending.
• 11:24
  They are betting big that those segments are the future. Which leaves you,
• 11:28
  the listener, with the ultimate question to chew on.
• 11:30
  We've seen the MPL ratio go up and the profitability ratios dip as a direct
• 11:34
  result of this strategy. The challenge BPI has set for itself is, how long will it take?
• 11:38
  How long until the yield benefit from this expansion fully outweighs the immediate
• 11:42
  heavy cost of those impairment provisions and reverses that short-term downward
• 11:46
  trend in profitability?
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  That time frame is going to define whether this bold strategy was a success.
• 11:52
  A fascinating test of patience. Indeed.
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  Until next time, keep digging deep.