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Issuer Credit Research

Issuer Flash: Bank of the Philippine Islands

Issuer: Bank Of The Philippine Islands | Document: Issuer Flash | Date: 2026-06-23 | Event: 1q 2026 Results

Report date: 2026-06-23 Event date: 2026-04-22 Event title: 1Q 2026 Earnings Call and Investor Presentation

1. Flash Conclusion

BPI's 1Q 2026 earnings call does not change the core credit view in the current issuer_summary: BPI remains a leading private-sector Philippine bank with PHP27.42bn of quarterly pre-provision profit, PHP2.844tn of deposits, CASA at 60.29%, CET1 at 13.94%, CAR at 14.80%, and investment-grade ratings carried from the existing issuer_summary. The credit read-through is more nuanced than the headline net income figure. Net income was still positive at PHP16.92bn and pre-provision profit rose 12.4% year on year, but provisions rose 83.3% year on year, the NPL ratio rose to 2.42%, and PFRS 9 NPL cover fell to 87.15%. The result therefore reinforces the existing view that BPI is not an acute credit-distress case, but that loan growth, NPL formation, provisioning, and liquidity headroom should now be monitored quarter by quarter.

The most useful incremental point from the investor presentation is management's explanation of asset quality. BPI stated that the year-on-year rise in the NPL ratio reflected the shift in loan mix toward non-institutional loans, while the quarter-on-quarter increase was primarily driven by institutional loans. That means the monitoring question is not simply "retail growth is risky." Credit investors need to check both faster-growing consumer / SME exposures and the possibility that a small number of larger institutional exposures can move quarterly NPL formation. For senior bondholders, the quarter is still compatible with investment-grade bank credit at the issuer-credit level, but this flash does not confirm individual bond terms, foreign-currency liquidity, or live relative value, and the margin for dismissing higher credit costs as noise has narrowed.

2. What Was Announced

BPI reported PHP16.92bn of net income for 1Q 2026, up 1.7% year on year and 4.9% quarter on quarter. Net revenues rose 13.9% year on year to PHP50.92bn, supported by 13.7% growth in net interest income and 14.5% growth in non-interest income. Net interest margin was 4.57%, and pre-provision operating profit increased 12.4% year on year to PHP27.42bn. This confirms that the earnings engine remains strong, even though the increase in net income was modest relative to revenue growth because operating expenses and provisions also increased.

The balance-sheet figures show continued growth and a gradual use of funding headroom. Total assets were PHP3.705tn, gross loans were PHP2.615tn, and deposits were PHP2.844tn as of March 2026. Loans grew 13.5% year on year, while deposits grew 10.4%, leaving the loan-to-deposit ratio at 91.95%. CASA ratio was 60.29%, down 221bp year on year but still a large part of the funding base. CET1 was 13.94% and CAR was 14.80%, which BPI described as well above regulatory requirements.

The loan-mix data are the main credit signal. Institutional loans were PHP1.786tn, down 2.1% quarter on quarter but up 8.9% year on year. Non-institutional loans were PHP829bn, up 3.8% quarter on quarter and 24.9% year on year, raising the non-institutional share of loans to 31.7%. Within this book, credit cards reached PHP249bn, up 33.3% year on year; SME / Business Banking reached PHP72bn, up 96.3%; personal loans reached PHP49bn, up 26.9%; mortgage loans reached PHP306bn, up 12.1%; auto reached PHP135bn, up 19.3%; and microfinance was PHP17bn, up 16.0%.

On asset quality, the presentation showed NPL level at PHP62.91bn and NPL ratio at 2.42%. PFRS 9 NPL cover was 87.15%, down from 94.92% at end-2025 and 100.11% in 1Q 2025. BPI also presented BSP Circular 941 NPL cover at 112.40%, ECL cover of 103.50%, and reserves plus collateral cover of 137.93%. This additional cover information is important because it partly offsets the optical weakness of the PFRS 9 cover ratio, but it does not eliminate the need to check whether future provisions remain earnings-absorbable.

3. Credit Read-Through

The first credit implication is that BPI's profitability remains a meaningful shock absorber. A bank that can generate PHP27.42bn of quarterly pre-provision operating profit has room to absorb higher credit costs without immediately threatening capital or senior creditor confidence. The quarter also showed fee and card income growth, supporting the view that BPI's customer franchise is broader than loan spread alone. However, the same customer and card expansion that supports fees also increases the need to watch consumer, SME, and Business Banking credit behavior. For bondholders, earnings quality is therefore positive but not a reason to ignore asset-quality direction.

The second implication is that the asset-quality watchpoint has become more specific. The current issuer_summary already identified rising NPLs and declining coverage as the main monitoring items. The 1Q presentation strengthens that point by showing that the NPL increase has two channels: the year-on-year movement is linked to the strategic shift toward non-institutional loans, while the quarter-on-quarter movement was primarily institutional. This is a more credit-relevant message than a simple conclusion that BPI has "retail risk." Rapid growth in Business Banking, cards, personal loans, auto, mortgage, and microfinance can produce lagged delinquencies, but institutional exposures can also cause lumpy NPL formation if a few larger accounts deteriorate.

The third implication is that provisioning adequacy cannot be judged from one coverage number alone. PFRS 9 NPL cover of 87.15% is lower than the historical level and remains a cautionary signal. At the same time, BPI's reported ECL cover of 103.5% and reserves plus collateral cover of 137.93% suggest that management views collateral and expected credit loss reserves as additional support. The credit judgment should therefore avoid both extremes: it would be too harsh to treat the lower PFRS 9 cover as proof of under-reserving without loan-level detail, but too complacent to ignore the combination of higher NPL ratio, lower cover, and rapid non-institutional growth.

Funding and capital still support the current credit view, but headroom is not unlimited. A 91.95% loan-to-deposit ratio remains manageable for a leading bank, but it is high enough that further loan growth materially above deposit growth would reduce flexibility. CASA ratio at 60.29% remains a strength, yet the year-on-year decline points to deposit-mix and funding-cost sensitivity. CET1 at 13.94% and CAR at 14.80% are adequate based on company disclosure, but if provisions stay elevated while risk-weighted assets continue to grow, capital generation rather than headline capital alone will matter.

For senior bondholders, the quarter is best read as a confirmation of "monitor, not exit" at the issuer-credit level. The result supports BPI's investment-grade-like profile because earnings, deposits, capital, and market access remain intact. It also confirms why BPI senior risk should not be treated as a generic defensive bank exposure without adjustment for Philippine sovereign risk, loan-mix migration, asset-quality lag, and foreign-currency funding questions. This issuer-level conclusion should not be read as a completed view on documentation, ranking, foreign-currency liquidity, or individual-bond recovery. No relative-value conclusion is made here because live spreads, bond prices, and same-tenor peer curves were not checked.

4. Key Numbers

Item 1Q 2026 Credit read-through
Net income PHP16.92bn, +1.7% YoY Earnings remain positive, but provision growth limited net income expansion
PPOP PHP27.42bn, +12.4% YoY Main buffer against rising credit costs
Provisions PHP5.50bn, +83.3% YoY Confirms that credit costs are now a material monitoring item
NPL ratio 2.42% Still not acute stress, but higher than recent levels
PFRS 9 NPL cover 87.15% Lower cover requires follow-up on reserve adequacy and collateral quality
ECL cover / total cover 103.50% / 137.93% Mitigating context, but not a substitute for delinquency and Stage 2 detail
Gross loans PHP2.615tn, +13.5% YoY Growth supports earnings and RWA, but raises asset-quality sensitivity
Non-institutional loans PHP829bn, +24.9% YoY Faster growth in higher-risk books remains the central watchpoint
Loan-to-deposit ratio 91.95% Manageable, but further increase would reduce funding headroom
CET1 / CAR 13.94% / 14.80% Supports issuer credit, subject to RWA and provision trends

5. What To Watch Next

The next results should be checked for whether NPL ratio, PFRS 9 cover, ECL cover, and total cover move together or diverge further. If NPLs rise while PFRS 9 cover falls and provisions remain high, the current "earnings-absorbable normalization" interpretation would become less comfortable. If coverage stabilizes and pre-provision profit continues to grow, the 1Q result would look more like a manageable cost of portfolio growth.

The second item is the composition of new problem loans. BPI's statement that institutional loans primarily drove the quarter-on-quarter NPL ratio increase makes it important to check large corporate, real estate, infrastructure, construction, conglomerate, and restructured exposures where public disclosure allows, without assuming which sector caused the 1Q movement. At the same time, the rapid growth of Business Banking, cards, personal loans, mortgage, auto, and microfinance should be monitored for lagged delinquency and credit-cost formation.

The third item is liquidity and funding. The loan-to-deposit ratio should be watched together with deposit growth, CASA ratio, time-deposit mix, other borrowed funds, LCR, NSFR, foreign-currency liquidity, and repayment or refinancing plans for 2026 maturities. Strong peso deposits support issuer credit, but they do not by themselves answer foreign-currency liquidity for USD senior bonds.

Unconfirmed items remain important. The reviewed public materials did not provide full Stage 2 migration, detailed vintage delinquency, credit costs by segment, detailed LCR / NSFR, currency-by-currency liquidity, individual bond terms, or live market spread information. These should remain next-confirmation items rather than assumptions embedded in the credit conclusion.

6. Sources