BPI Flags Uncertain Earnings Outlook Amid Economic Headwinds

Bank of the Philippine Islands (BPI) sees an uncertain earnings outlook for the rest of the year as weaker economic conditions keep credit-loss provisions elevated, after its first-half net income slipped to P32.8 billion. BPI president and CEO Jose Teodoro Limcaoco said it remains unclear whether profit growth will pick up in the coming quarters after net income was nearly flat in the first half. “It remains to be seen. Its not clear because it depends on where the economy goes,” Limcaoco told reporters yesterday. “The difference from last year and this year is our revenues are strong, but our provisioning is elevated because economic conditions are worsening,” he said. The Ayala-led bank booked a net income of P32.8 billion in the first half, 0.4 percent lower than the P33 billion recorded in the same period last year, as higher operating expenses and provisions offset double-digit revenue growth. The bank’s provisions surged by 84 percent to P13.3 billion as expected credit losses increased amid weaker macroeconomic conditions and outlook. Limcaoco said BPI’s expected credit loss model requires the bank to build additional buffers when economic conditions worsen even if actual non-performing loans (NPL) remain steady. “Even though NPL isn’t rising, but because economic conditions are less positive, you have to put more (provisions). That’s just what the model says,” he said. “When economic conditions come back, you’ll be able to reduce your provisions.” Despite the earnings pressure, Limcaoco said BPI remains confident that loan growth could stay in the low teens this year after the bank’s loan portfolio expanded by 12.4 percent to P2.7 trillion as of end-June. “I’m fairly confident that we should still be able to grow low double digits. Low teens,” he said. Limcaoco also expects BPI’s NPL ratio to remain broadly stable for the rest of the year. The bank’s NPL ratio stood at 2.42 percent in the first half, unchanged from the first quarter. While he does not expect deterioration across the entire portfolio, Limcaoco acknowledged emerging stress in some consumer segments. “Clearly, times are a little tougher. So we’re also tightening credit standards. And we’re also beefing up collection,” he added. Limcaoco said BPI’s economic assumptions remain broadly aligned with the market, with the outlook still dependent on factors such as infrastructure spending, inflation and monetary policy. “A lot remains to be seen, like whether infrastructure spending picks up. A lot remains to be seen, whether inflation expectations are handled well and whether the central bank raises rates to combat inflation,” he said. On monetary policy, Limcaoco expects the Bangko Sentral ng Pilipinas (BSP) to deliver at least one more rate hike this year, potentially as early as August, but does not expect a 50-basis-point increase in a single move. “My guess is they’ll probably hike rates either in August or October. I don’t see them hiking rates 50 basis points in one blow,” he said. “I think they’ll take it one at a time. Most economists are saying two. But I think all economists are saying at least one,” Limcaoco added. The BSP has raised policy rates by 50 bps this year, bringing its key interest rate to 4.75 percent after consecutive 25-bp hikes in April and June. BSP Governor Eli Remolona Jr. earlier said the Monetary Board is open to a more aggressive 50-bp rate hike next month as policymakers assess a growing list of inflation risks, although such a move remains unlikely for now.