BANK of the Philippine Islands (BPI) expects to finalize its framework for blue bonds within this quarter, but the timing of its first issuance will still depend on its funding needs.
“There’s just an approval process that we need to go through. I continue to expect that before the end of the year, it should be in place. In fact, I think even before the end of the third quarter, it should be done,” BPI Chief Financial Officer Eric M. Luchangco told BusinessWorld last week.
He added that the bank already has some projects that it could finance under the framework once it gets finalized.
“We already have some projects that are eligible for it. We will definitely continue that as time goes on… but we already have some projects that would be eligible once we have the framework,” Mr. Luchangco said.
However, BPI Treasurer and Global Markets Head Dino R. Gasmen told BusinessWorld that while there is strong demand for local currency issuances, the bank could still wait until the end of the year before it launches another bond offer.
“I think one of the reasons why there’s so much demand from retail investors is because I think they believe that the BSP (Bangko Sentral ng Pilipinas) is going to bring down policy rates. So, it’s better to lock it down because it looks like they will cut rates. For banks, it’s the reverse — we want to take advantage of the lower rates, so we’ll probably wait for rates to go lower before we issue,” he said.
Ideally, they want to wait until the BSP finishes its current easing cycle, Mr. Gasmen said.
“But it depends. If there’s a strong pipeline, we may not need to wait for the BSP to reduce rates,” he added.
BPI last tapped the domestic bond market in June, raising P40 billion from 1.5-year BPI Supporting Inclusion, Nature, and Growth or SINAG Bonds, its largest peso bond issuance to date.
This marked the first tranche of the bank’s P200-billion bond and commercial paper program approved by its board of directors in October last year.
BULLISH INCOME PROSPECTSMeanwhile, BPI President and Chief Executive Officer Teodoro K. Limcaoco told BusinessWorld he is hopeful that the bank will post another record-high net income this year as it continues its expansion into the consumer sector to help offset margin pressure as benchmark borrowing costs go down.
“I certainly hope so. The first quarter is an indication. Our first quarter, we grew 7% versus last year, so if you extrapolate, it’s higher. We’ll see,” he said when asked if BPI could sustain its record profit performance, as the bank posted all-time high earnings in the last three years.
BPI’s first-half net income increased by 7.8% year on year to P33 billion from P30.6 billion.
Mr. Limcaoco said during BPI’s anniversary celebration event on Friday that banks have to expand their market to help compensate for the expected slowdown in income growth expected as the interest windfall that came with tight monetary conditions comes to an end.
“The growth rate in earnings is slowing down. Rates are coming off. And therefore, to compensate for this, you’ve got to broaden your market — and that takes time to pay off,” he said.
“When interest rates fall, loan rates fall across the board. They fall faster for corporate loans. But also, people forget that it also affects time deposit rates. So, our funding costs also fall.
Also, given that corporate loans tend to reprice over a year… Consumer loans actually don’t reprice because they’re very sticky. And time deposit costs reprice very quickly.”
Net interest margins (NIM) usually expand a little as an immediate reaction to rate cuts, he noted. “But over the long run, everything else being equal, our NIMs actually fall. The estimate is maybe three or 4 basis points (bps) for every 25 bps [of cuts].”
“At the end of the first half, our consumer loans were 29.7% of our portfolio versus maybe five years ago when it was only 20%. So, we have grown our… non-institutional loans significantly faster,” Mr. Limcaoco said.
BPI’s institutional loans grew by 9.4% in the first half, while consumer or non-institutional loans grew by 26.9%, the bank earlier said.
Mr. Limcaoco said he still expects their loans to expand by double digits this year.
Mr. Luchangco said during the same event on Friday that loan growth will help support BPI’s profits.
“Largely, I think the trend that we’re seeing in the first half of the year will continue into the second half of the year in terms of the relative growth between corporate and between consumer,” he said.
“It’s a positive for us because we’ve been showing decent performance in the first half, with loan growth at about 14%. And earnings have continued to improve. So, we believe all of the factors exist for that to continue into the end of the year,” the official added.
Meanwhile, Mr. Limcaoco also announced on Friday that the bank has received approval from the Monetary Authority of Singapore to set up an office for BPI Wealth – A Trust Corp. in the city-state, which is expected to open in October.
This will be its third overseas BPI Wealth office following the ones in Hong Kong and London.
“We’re opening an office to serve Filipino clients in the ASEAN (Association of Southeast Asian Nations) region and Filipino clients who want investments overseas that we can house in Singapore,” he told reporters.
He added the office will target preferred and high-net-worth clients.
BPI Wealth President and Chief Executive Officer Maria Theresa D. Marcial said the office will be located at the Marina Bay Financial Centre. — Aaron Michael C. Sy