Bank of the
Philippines Islands

WHO WE ARE
The 168-year-old Bank of the Philippine Islands is the first bank in the Philippines and Southeast Asia, and is licensed by the Bangko Sentral ng Pilipinas to provide universal banking services to its 8.7 million customers. The Bank provides trusted advice and financial services tailored to the needs of its diverse client base of retail and corporate clients, including self-employed micro-entrepreneurs, overseas Filipinos and their beneficiaries, small and medium enterprises, domestic conglomerates, and multinational corporations.

A premier institution in the banking industry, BPI is among the highest in terms of total assets, equity capital, and market capitalization. It has a significant share of total banking system deposits, loans, and investment assets under management. It is recognized as one of the country’s top providers of foreign exchange, cross-border remittances, life and non-life bancassurance services, as well as asset finance and leasing. BPI also has a significant capital markets presence, particularly in fixed income and equities underwriting, distribution and brokerage.

BPI serves its clients through one of the most extensive physical and digital distribution networks, composed of 1,167 branches and branch-lite units, three international offices, and 2,822 ATMs and Cash Accept Machines (CAMs) nationwide. The Bank is a leader and innovator in the use of digital channels, and is a major provider of financial services for retail clients through internet banking (via BPI Online at www.bpi.com.ph) and mobile banking (via BPI Mobile app), and for corporate clients via Bizlink.

MARKET OUTLOOK
The Philippine economy expanded 5.9 percent in 2019, below the 6 to 7 percent target of the government. Despite the strength of household consumption, delays in the implementation of infrastructure projects and the decline in investment spending dragged growth below the 6 percent level. For 2020, the COVID-19 outbreak has become the greatest challenge for the global and domestic economies. It is clear that the outbreak will have a negative impact on the economy. However, quantifying the potential impact of COVID-19 on the Philippine economy is difficult given the uniqueness of the event.

Household consumption recovered in 2019 as inflation slowed down. Stable oil prices and sufficient rice supply pulled down average inflation from 5.2 percent in 2018 to 2.5 percent in 2019. Household consumption will likely continue to be the main driver of growth in the medium term with support from OF remittances and record-low unemployment. However, the enhanced community quarantine in various parts of the economy has crippled household consumption to an extent not seen since the early 1980s.

Capital formation contracted in 2019 for the first time in seven years as demand for machinery and equipment declined. Corporates may have postponed or scaled down the purchase of durable equipment given elevated global growth uncertainties and expectations of lower interest rates in the coming months. Meanwhile, public construction posted a 2.4 percent contraction as a result of government underspending. The budget impasse and election spending ban in the first half of the year prevented the government from spending on new infrastructure projects. Looking ahead, capital expenditures may fall as business will most likely prioritize their liquidity to sustain themselves and their employees amid the measures to prevent the spread of COVID-19.

Looking at sectoral growth in 2019, services, retail trade, and financial intermediation recorded all recorded strong years. Meanwhile, the industry sector slowed down amid weakness in manufacturing and construction and global trade uncertainties weighed down manufacturing growth. In 2020, the COVID-19 outbreak may hurt several industries given the restrictions on movement and economic activity. In particular, the following industries may see a decline in economic output and revenues: tourism, airlines, real estate, transport, and manufacturing.

Low inflation in 2019 gave the BSP the opportunity to do monetary easing. Given the liquidity and growth challenges being faced by the economy, the Monetary Board reduced the policy rate by 75 basis points from 4.75 percent to 4.00 percent and brought down the reserve requirement ratio (RRR) by 400 basis points from 18 percent to 14 percent. Benchmark interest rates declined as liquidity improved gradually.

BPI is ready to meet the fast-evolving needs of its clients, arming its flagship branch with a modern and innovative design, complemented by the latest technology in banking.

The BSP has reduced the policy rate by another 75 bps so far and may resume its monetary easing in 2020 given the economic damage that COVID-19 could bring. The enhanced community quarantine may squeeze liquidity amid the lack of spending and the need for savings in this time of crisis. As a result, the central bank may inject liquidity into the financial system through its monetary policy tools such as open market operations and further reduction in the reserve requirement on deposits.

Meanwhile, global risk aversion due to COVID-19 may fuel the demand for safe haven like the US Dollar. Emerging market currencies like the Philippine Peso may weaken as investors shift their funds to assets that could protect them from the impact of COVID-19. However, the possible decline in imports and remittances due to supply disruptions may temper the depreciation pressure from risk aversion.

BUSINESS REVIEW
In 2019, BPI realized net profits of ₱28.80 billion, an increase of 24.8 percent or ₱5.73 billion from the ₱23.08 billion recorded in 2018. The 20.1 percent increase in total revenues to ₱94.33 billion drove profit growth, but was partially offset by higher operating costs, loss provisioning, and taxes which grew ₱6.47 billion, ₱899 million, and ₱2.68 billion, respectively. The Bank’s comprehensive income was ₱28.77 billion, up 31.5 percent on higher net income and improved marked to market valuation of fair value through other comprehensive income of the parent, insurance companies and associates.

The Bank’s continued focus on growing its high margin businesses while maintaining its corporate franchise resulted in strong revenue results for the year. Total Revenues stood at ₱94.33 billion, an improvement of 20.1 percent boosted by the Bank’s core businesses.

BPI is committed to enhancing its overall customer service, providing relevant banking solutions and trusted financial advice.

Net interest income grew by 18.1 percent to ₱65.94 billion from 2018’s ₱55.84 billion attributed to a 24-basis point expansion in net interest margin to 3.35 percent in 2019.

Non-interest income was ₱28.39 billion, an increase of 25.2 percent versus 2018, primarily from higher securities trading gains and fee-based income, higher fees from credit cards, transaction banking, branch services, and digital channels, but was slightly tempered by lower income from investment banking.

Cost-to-income ratio was 53.1 percent, lower than the 55.5 percent recorded in the prior year given the strong revenue performance. Operating expenses totaled ₱50.08 billion, higher by 14.8 percent from the previous year.

Total assets stood at ₱2.20 trillion, higher by 5.7 percent year-on-year, as total funding increased 5.3 percent to ₱1.85 trillion.

Total loans as of December 31, 2019 reached ₱1.48 trillion, up 8.9 percent from the previous year, on the back of growth in the consumer, corporate, SME, and microfinance loan segments of 13.4 percent, 7.9 percent, 5.8 percent, and 100.3 percent, respectively. This brought loan-to-deposit tatio at 87.0 percent. In terms of asset quality, the Bank registered NPL ratio of 1.66 percent and an NPL reserve cover of 102.1 percent, an improvement of 19 and 13.8 percentage points, respectively.

Total deposits grew 6.9 percent to ₱1.70 trillion versus the level recorded in 2018.

The Bank was active in the debt capital markets with a number of capital raising activities in 2019: (1) Green bond issuances of CHF 100 million two-year interest free ASEAN Green Bond and the US$300 million Senior Unsecured Fixed-Rate ASEAN Green Bond; (2) Over ₱3 billion of Long-Term Negotiable Certificates of Time Deposit (LTNCTDs); (3) Maiden bond issuance amounting to ₱9.51 billion of wholly-owned thrift bank and consumer lending arm, BPI Family Savings Bank.