Okay. Good afternoon, everyone, and welcome to our earnings call to discuss BPI's results for the third quarter and the first nine months of 2024. I am Chinky Lucban, your moderator for this afternoon. We are conducting this briefing in a hybrid manner with our speakers and panelists here in our headquarters at Tower Two of Ayala Triangle Gardens in Makati, while the rest of our participants are dialing in remotely. Just a reminder to everyone who are online to enhance your viewing experience. May we request you to select your view settings under side-by-side speakers so that the slides will be much clearer. Okay. This afternoon, I'm pleased to introduce our speakers and panelists this afternoon.
They are our President, TG Limcaoco, our Chief Finance Officer, Eric Luchangco, and they will be joined in the panel in the Q&A by Ms. Ginbee Go, our Head of Consumer Banking, Mr. Maria Theresa Marcial, our Head of BPI Wealth, Jenny Laserna, Head of our Mass Retail Products business, and John Syquia, who will be joining us remotely, our Head of Institutional Banking. We are also joined by the rest of the BPI senior leadership team in this call. This afternoon's agenda will begin with opening remarks from our President, TG Limcaoco, followed by our CFO, Eric Luchangco, who will walk you through the financial highlights for the first nine months of the year, as well as some updates on our digital and sustainability initiatives. The floor will then be open to questions from the audience.
Now, let me turn you over to TG for his opening remarks.
Thank you very much, Chinky, and a warm welcome to everyone dialing in today for our quarterly and nine months earnings. BPI resulted, as Eric will tell you, with very strong results for the first nine months, with net income up 24.3%, EPS rising 16.5%. That difference as a result of the 6% dilution of the Robinsons Bank shares that were issued upon the merger. We also had strong third quarter numbers, where our net income versus quarter two was up 13.8%. We had record levels for both net interest and fee income. We had good trading profits as a result of the easing stance that the BSP has taken.
All of this, we're prepared to give more color from my colleagues here today. We saw deposit growth of 14.5%. We saw loan growth of 18.9%. I believe this to be better than the market, even after removing the effects of the Robinsons Bank merger. Our share of non-institutional loans in our loan book continues to grow. That's now at 27.4%. As all of you will recall, that's something that we've been moving towards a 30% level. This is the reason for the continued expansion of our NIMs in the quarter, as well as the slightly higher NPL level that we had versus last year.
Our NPL uptick in quarter three was driven by upticks in both our corporate NPL book and our mortgage book, which we are also prepared to share some color on. Let me end here and turn this over to Eric. Thanks again, everyone, for joining us today. Before I turn over to Eric, I'd also like to introduce one of our panelists today, Jenny Laserna. Jenny replaces and succeeds Jojo Ocampo, who retired at the end of September as head of our Mass Retail Business, responsible for the cards, the personal loans, as well as the Microfinance Business. Eric, thank you.
Thank you, TG. Good afternoon, and thanks to everybody joining us for this, our third quarter earnings call. We're pleased to report that the bank delivered another quarter with a strong set of results, and the highlights are as follows. For the first nine months, the bank generated a record income of PHP 48 billion, up 24.3% from the prior year, largely driven by revenue growth. The bank also generated a record quarterly income of PHP 17.4 billion, up 13.8% quarter-on-quarter. Return on equity further improved to 15.9% and return on assets to 2.07%, the highest levels in a decade.
The balance sheet continued to expand in the third quarter, with loans up 18.9% year-on-year and 2.5% quarter-on-quarter, while deposits were up 14.5% year-on-year and 1.4% quarter-on-quarter. Liquidity ratios remained robust, with LCR at 195% and the NSFR at 144%, while the capital position further strengthened from the strong income generation with the CET1 ratio at 14.8% and CAR at 15.5%. Asset quality remained solid, notwithstanding a slight uptick in the NPL ratio to 2.3%. NPL cover remains comfortable at 111.2%.
Finally, for the first nine months, the bank generated an earnings per share of PHP 9.10, up 16.5%. We remain on track to return excess capital to investors. Taking a deeper look into the first nine months performance, we delivered a net income of PHP 47.99 billion, up 24.3% year-on-year, driven by revenues which offset the increase in operating expenses and provisions. This includes net interest income of PHP 93.85 billion, up 22.2% attributed to strong loan growth and higher NIMs. Trading income of PHP 2.98 billion, up 175.3%, as we took some profits following the decline in interest rates. Fee income of PHP 26.38 billion, up 28%, on sustained strong volume growth in our biggest businesses.
Total revenues hit a record PHP 125.76 billion, up 24.7%, while operating expenses at PHP 59.36 billion were up 22.1%, driven primarily by growth in manpower, technology, and business volumes. Pre-provision operating profit of PHP 66.4 billion was up 27.1% on a sustained positive jaw. Provisions of PHP 4.8 billion, up 60% brought net income to PHP 48 billion, up 24.3%. Looking at the sequential quarters, net income of PHP 17.42 billion is up 13.8%. The revenue-led performance remained intact with the quarter's revenue at PHP 44.58 billion, up 7% from the prior quarter, driven by record quarter net interest income of PHP 32.59 billion, up 3.8% quarter-on-quarter.
Record quarter fee income of PHP 9.39 billion, up 4.5% quarter-on-quarter, and trading income of PHP 2.23 billion, up 19 times versus last quarter. OPEX of PHP 21.08 billion was up 4.1%, resulting in a pre-provisioning operating profit of PHP 23.5 billion, up 9.8%. Provisions of PHP 1.8 billion, up 20%, bringing the current running credit cost to 31 basis points. All told, the bank generated a record quarterly income of PHP 17.42 billion, up 13.8%. Earnings per share for the first nine months was, as mentioned, PHP 9.10, a 16.5% increase from last year, despite the additional shares issued through the Robinsons Bank merger effective January of this year.
Higher earnings, further improved profitability, driving ROE to 15.88% and ROA to 2.07%, the highest level since 2013. Total resources for the bank stood at PHP 3.18 trillion, up 2.2% quarter-on-quarter and 17.2% year-on-year. Gross loans stood at PHP 2.13 trillion, while deposits were at PHP 2.49 trillion, up 18.9% and 14.5% year-on-year, respectively. Excluding the amount of loans and deposits added to the book on day one of the RBC merger, loan growth would have still been at 12.4% and deposits 7.7%. Still higher than recent industry trends and reflecting sustained organic growth.
Our deposit base remains stable, with retail clients contributing 70% of total deposits and 71% of CASA. As shared in our previous meetings, we continue to manage deposit growth and improve our loan-to-deposit ratio, which are supportive of our NIM. We continue to see positive trends on the loan book, which stood at PHP 2.13 trillion, up 18.9% year-on-year, and 2.5% quarter-on-quarter. The strong performance of the loan portfolio is broken down on the table to the right. Institutional loans posted a two-year CAGR of 11%, while non-institutional posted a 17.9% CAGR, with consistently strong growth across all segments.
The table below shows the steady shift in the loan mix to consumer loans, business banking, and microfinance, which collectively account for 27.4% of the mix as of third quarter 2024 from 21.1% in 2021. Continuing the trend in the previous quarters, all loan segments posted solid year-on-year growth, led by business bank for the SME portfolio, up 103.6%, personal loans up 103.3%, and microfinance up 65.2%. These were followed by auto loans up 36.3%, credit cards up 33.1%, and mortgage up at 31.8%. Institutional loans, despite a gain of 12.8%, posted the slowest growth among the segments.
Collectively, the high yield segment grew 39% year-on-year, outpacing growth in the institutional loan book, further shifting the loan mix in favor of non-institutional loans, which now account for 27.4% of total loans, which is up 394 basis points from last year. This same trend applied to sequential quarter growth as well. Institutional was up 1.5%. Business bank up 18.2%. Microfinance up 10.4%. Personal loans up 9.4%. Credit cards 5.8%. Auto loans 5.4%. Mortgage up 2.9%.
Loan releases for the past 12 months have been consistently higher than last year, with September loan releases amounting to PHP 5.1 billion, up 28% year-on-year. Institutional banking loan growth improved from the previous quarter. Well, institutional banking loan growth at 1.5% improved from the previous quarter. The outlook into the fourth quarter of 2024, moving into 2025 is positive, buoyed by expectations of further rate cuts from the BSP, and an improving macro outlook. Moving on to the liability side. Deposits stood at PHP 2.48 trillion, up 14.5% year-on-year ahead of the industry trend. Consistent with the industry, the CASA ratio declined on the sequential quarter.
However, we continue to strengthen our deposit franchise with our mass market customer segment showing consistently strong deposit growth in the past eight months and the highest CASA ratio among our market segments. Deposits from our mass market are up 210% from last year and 10% on the sequential quarter. Our deposit mix is still largely retail, which accounts for 70% of total deposits, or 75% if you include the business banking deposits there. Given the elevated TD rates through the first nine months of the year, we have pivoted to tapping other sources of funding, including bond issuances. This funding vehicle offers significantly lower effective yields than top rate time deposits.
As of September, the bank's total borrowings stood at PHP 131 billion, unchanged from the beginning of the year as bond issuances and additional borrowings from RBC offset the bond maturities. Compared to 2022, borrowings are up 69% and the bulk are in peso and pay a fixed interest rate. We have kept the average tenor relatively short at less than two years to maintain flexibility for refinancing as rates move downward in the near future. Our recent bond issuance, the 1.5-year, PHP 33.7 billion BPI Sustainable, Environmental, and Equitable Development Bonds or BPI SEED Bonds, which pay 6.2% interest, was nearly 6 times oversubscribed, reflecting the bank's flexibility to tap other funding sources as needed.
The bond, which forms part of our PHP 100 billion bond program, was the bank's first foray into sustainable bond format under BSP Circular 1185, which provides incentives for banks to extend loans for green and sustainable projects. Continuing the trend of the previous quarters, NIM increased in the sequential quarter by 3 basis points to 4.35% and by 20 basis points from last year, driven by a higher loan to deposit ratio and the continued shift in our loan mix to non-institutional loans, which more than offset the impact of a slightly lower CASA ratio. The recent announcement by BSP to cut the RRR by 250 basis points effective the 25th of this month is positive for NIM.
Further RRR cuts being suggested by the BSP would push NIM and ROE structurally higher. Moving on to asset quality. The NPL ratio increased 10 basis points to 2.3% on the sequential quarter, driven mostly by the institutional segment and to a lesser extent by movements in the consumer segment. If we exclude the NPLs that have turned current but still classified as NPL during the six-month seasoning period as prescribed by the BSP's regulations, the bank's NPL ratio would actually be at 2.06%. Despite the uptick to 2.3%, overall asset quality remains benign and below industry averages.
Credit cost has remained below normalized levels for nearly two years now, allowing NPL cover to slide, but still sufficient at 111.2%. In addition to reserves, the NPL portfolio also has a collateral cover of 200%. The increase in the NPL ratio for the quarter is mainly attributable to two key items. One, an account in our institutional segment, which turned NPL after three months being past due. We have been in discussions with the company on a restructuring and believe that we are close to working something out. We expect the account to become current in the succeeding months, but as required by regulations, the loan will remain classified NPL for six months after payments are resumed due to the six-month seasoning period.
The second is due to a technical increase in NPL delinquency in the market segment stemming from a contract to sell arrangement where the developer's delivery of the project was delayed, prompting clients to hold on payments. This is a temporary setback, as we are confident the developer has the resources and is committed to deliver the project. As turnover of the project occurs, these accounts will be released from the delinquency count. On the other hand, the credit card NPL ratio, which peaked at 5.24% in June, has since declined to 4.5% in September. It had aided by write-offs. NPL cover for credit cards remains sufficient at 1.5 times. The upticks in NPL ratio of personal microfinance and business banking are in line with our strategy and are not unexpected. Moving on to our fee income.
We delivered a record quarter fee income of PHP 9.39 billion, up 26.6% year-on-year and 4.5% quarter-on-quarter. Year-to-date growth was led by our biggest businesses. Credit cards up 28.7% year-on-year on record billings, which were up 22%, aided by a 15% increase in active customers. Wealth management up 17.6% on record AUM of PHP 1.54 trillion, up 25% year-on-year on sustained net inflows and higher securities valuation, and on increased trust fees for select investment funds effective February of this year. Insurance up 73.4% year-on-year, driven by equity income from investments in BPI&MS and BPI AIA, and higher branch commissions on new insurance products. Branch service charges up 33% due to steady increase in the number of transactions.
ATM and digital channels up 22.2% on a 57% increase in total fees from API partners, as well as a 72% growth in interbank fund transfers. Transaction banking up 20% year-on-year, driven by higher cash management fees from Robinsons Bank merchant acquiring business, as well as an increase in trade and supply chain fees. These increases were partly offset by the decline in investment banking, due primarily to two large project finance deals that were closed last year. Year-to-date, investment bank closed 18 deals versus 16 in the prior year. Operating expenses stood at PHP 21.1 billion, up 22.4% year-on-year, driven by manpower cost, which was up 24.4% due to structural salary adjustments, higher headcount from the merger, as well as CBA negotiations.
This also included expenses on HR initiatives that resulted in lower attrition, better employee engagement, enhanced employee development, and a positive cultural change. Premises cost up 23.3% was primarily due to additional branches and office space from the RBC merger. Technology expense was up 17.2% on continued investment in digitalization and increased number of transactions. Other expenses, which includes marketing expenses attributable to campaigns, particularly in our credit card business, and rewards expense, which was expanded beyond credit card usage, to include loans, deposits, investments, and payments, was up 23.4% year-over-year.
Despite the increase in operating expenses, the year-to-date cost income ratio stood at 47.2%, 100 basis points lower than the same period last year, due to a faster increase in revenue. We added nearly three million clients this year, bringing total client count to 14.52 million. While we continue to rationalize the number of BPI branches moving forward, we are still looking to build a presence in underserved areas. While looking to expand BanKo and LSB's branch footprint, and focus on scaling up customer acquisition and transactions in our agency banking's 6,369 partner stores. We remain well-capitalized. Our CET1 capital was at PHP 373 billion, up PHP 55.9 billion from last year on net income accretion and additional shares issued through the merger.
Capital ratios remain robust, notwithstanding the increase in risk-weighted assets from strong loans expansion and increase in capital distribution. CET1 stood at 14.83% and CAR at 15.54%. Though lower year-over-year, the ratios remained well above regulatory and internal thresholds and sufficient to support continued loan expansion. Let me now provide a brief update on our client engagement platforms. On VYBE, we have over 1.38 million sign-ups, 18% of which are new to bank, including those onboarded without the need of an ID. Sign-ups have been increasing gradually, with 33,000 new clients in August from only 4,000 in January. In addition to receive and send money to other banks, scan QRPH, bills payment, and cardless withdrawal, clients can now buy load for telco and transportation.
BPI app launched cardless withdrawal, which allows clients to withdraw cash from BPI VYBE and Euronet ATMs with no card needed. Growth has been steady with 7.5 million enrolled clients and 4.9 million active users, up 19% and 9% year-on-year respectively. New features are still being developed for BPI Trade app, and the UI/UX improvements are in the works as well. We now have 423,000 registered users in the BanKo app, translating to 22% year-on-year. The app saw 177,000 financial transactions corresponding to PHP 799 million or 94% and 1.8 times increase versus last year. On BizKo, we recently introduced salary on demand to BizKo users to be offered to their employees. We now have 24,000 enrolled clients, up 67% year-on-year.
On BizLink, we have a 41% penetration rate on an expanding client base, and the number of transactions on the platform is up 45% year-on-year. Lastly, on BPI Wealth, the app for high-net-worth individuals for their investments, there's 13,000 enrolled since its launch in April with 1,800 active users. The inclusion of CASA accounts in BPI Wealth online will be available soon. We continue to expand our retail client base now at 14.4 million, adding 2.9 million customers year to date. 62% of them were onboarded via digital platforms and agency banking. Our efforts to convert clients to become digital customers is progressing nicely, the latest count of which is at 5.6 million or 39% of our total retail clients.
In terms of engagement, digital customers had about 4.6 times more transactions than non-digital customers in September, driven by the increase in transactions made via digital platforms, which resulted to 1.62 times more revenue per capita compared to non-digital clients. On August 5 in Cebu, the bank officially launched the cash-in, cash-out banking service, which allows BPI account holders to deposit and withdraw cash at select Prince Hypermart stores and Prince Hypermart partner stores. This was followed by Rodamel drugstores in Tuguegarao, bringing to 36 the number of partner stores with branch-like functionality. We will continue to expand this further as we move forward. The map shows these 36 partner stores in yellow and red pins, which are mostly located in areas where BPI branches, shown in red dots, are not present.
On the left, we show a typical setup of BPI, identified by May BPI Dito or BPI is here, signages in partner stores and the interaction of BPI clients with partner store employees. We process an average of 100 transactions per day with an aggregate amount of PHP 600,000. Notwithstanding the low count, at this early stage, this initiative marks a significant leap for BPI towards financial inclusion by reaching more underserved areas, both to acquire and to service bankable Filipinos. Turning to teachers loans offered through Legazpi Savings Bank or LSB, which is a subsidiary acquired through the merger with RBC.
Having secured BSP approval to market teachers loans through BPI and BanKo branches in June, the teachers loan portfolio of LSB saw its highest monthly loan release of about PHP 1 billion in September, up nearly 100% from last year. This brings third quarter loan releases to PHP 2.18 billion, up 43% year-on-year, and outstanding loans to PHP 7.8 billion, up 50% year-on-year. We're excited about the contribution of teachers loans to our portfolio, given its reliable superior yields and low NPL profile. Today, we only have a 2% market share of teachers loans, but we are confident that we can become one of the dominant players in this segment, supported by our digital onboarding platform, BPI's large branch network, and a simplified process. BPI continues to further boost its sustainability efforts across both the banking and operations side.
BPI issued the PHP 33.7 billion SEED Bonds, the proceeds of which were allocated to projects with clear environmental and social benefits. BPI Capital also acted as the joint lead arranger and sole selling agent of the transaction. We added two new project types to BPI's flagship sustainable development finance program, namely pollution control, sustainable water projects, and sustainable water project. BPI continues to offer free technical evaluation from IFC-trained and accredited consultants as part of its SDF program. We released Salary On-Demand, which allows employees to access their earned wages instantly, providing financial support when they need it most. BPI Capital also had several ESG-themed deals this quarter, including ALI's sustainability-linked bond with key performance indicators related to carbon emissions reduction. Maynilad's Blue Bond, the proceeds of which support sustainable water and wastewater management.
EDC's Green Bond, the proceeds of which are used for geothermal, wind, solar, hydropower, bioenergy, and energy storage projects. BPI also funded PHP 4 billion of the PHP 8 billion term loan facility of Alternergy Tanay Wind Corp, with BPI Capital also acting as one of the mandated lead arrangers. Proceeds of the loan will be used for the construction and development of a wind farm in Tanay, Rizal. Finally, BPI continued to make its day-to-day operations more environmentally sustainable this year, adding seven new IFC EDGE certified bank branches, bringing the total number to 18. In 2024, BPI has garnered a total of 15 ESG-focused awards year to date, with various reputable award-giving bodies such as FinanceAsia, Global Finance, and The Asset, surpassing its record high of 14 ESG-focused awards received in 2023.
In summary, on profitability, we saw improved profitability with record quarter income led by revenue. On the balance sheet, loan growth remains strong across all segments, led by non-institutional segments. The bank's liquidity and capital positions remains above regulatory thresholds. On asset quality, despite upticks in NPL, strong asset quality is maintained with sufficient cover. Lastly, we delivered high EPS on an improved ROE and are on track to deliver further improved dividends next year. We are pleased with another quarter of strong operating results. We are optimistic about the bank's ability to sustain its performance in light of the normalization of interest rates and an improving macro outlook. We will continue to execute our strategic initiatives with discipline. We now open the floor to questions.
Thank you, Eric Luchangco. Before we open the floor to questions, may we ask our senior leaders to come in front? We will just set up the chairs for a few minutes. We'll have Ginbee Go, Head of Consumer Banking, Theresa, Head of our private wealth business, and Jenny Laserna, Head of our Mass Retail Products business. For those online, just give us a couple of minutes. If you're joining us via Zoom, there are two functions at the bottom of the Zoom webinar screen you may use to queue. One is the raise hand function. I will then prompt you, and you can unmute your line to speak. Alternatively, you may type your questions in the Q&A box, and we will read out your question on your behalf.
For those on-site, you may use the microphone available on the floor, or you may raise your hand, and we will have someone hand the microphone to you. Please identify yourself by your name and company so we can address you accordingly. Okay. Anyone on the floor for questions?
Yes. Hi, ma'am. Good afternoon, and congratulations on the results and the presentation. I'm Jamie from BPI Wealth. Just wanted to drill down on the asset quality. Can you discuss the top drivers of NPL and your thoughts on NPL formation and NPL ratio moving forward? Thank you.
Yes. So there were really, as I mentioned during the presentation, two key drivers to the growth in NPL, right? There was the one from one account from institutional, which, you know, it's actually been a problem account for a while. They fell into PDO status three months ago, a little over three months ago. Because we've been working with them in order to try and resolve their situation, work out a plan on which they could repay the loan. We're coming close to what we believe is a workable solution, but we weren't able to complete that before the account went into NPL, and therefore it is now in NPL status.
We do believe that we'll be able to come to a solution on this, and that, therefore, over time, it will move back into current status. That will, of course, take at least six months after they start paying because of BSP regulations. But again, we're fairly confident that we'll be able to work out a payment plan for them. Again, the second key driver there was on the mortgages, where we saw basically a one large developer with a large project that basically they're not completed on time. Therefore, it's very understandable that the buyers have withheld payment because, you know, the turnovers aren't happening.
But again, as I mentioned, we do believe that the project is gonna be completed. We know the company has the resources to do so, and we know they're committed to finishing the development on the project. Therefore, these turnovers are gonna happen, and therefore, the end users are gonna pay for it. Those are the two key drivers. Meanwhile, if you look at some of the other accounts, some of the other segments, we're actually seeing some strength in those segments. We saw some recoveries in credit cards. And I think, although month-on-month business banking was down a little, if you look on it on a year-on-year basis, they're actually
They're actually higher. Especially with the interest rate environment looking like it's gonna become easier, we do believe that the delinquencies will be maintained under control. Thank you.
Thank you, Eric. We have a question from one of our participants in Zoom. Akash of UBS, you can unmute your line. Akash, are you there? Who's the host? Can you unmute the line?
Okay, I can. Hi. Sorry.
Go ahead, Akash.
This is Akash from UBS. Thanks for taking my questions. The first one I can't hear you well. I don't know if that's the case for you as well.
Go ahead, Akash. We can hear you.
Okay. The first one is just in terms of the pickup in NPL that we saw, what was the split between the institutional account and the mortgages? There was 43 basis points of NPL formation this quarter. Could you give us the split between the two categories?
Akash, the institutional account that Eric talks about was about a PHP 2 billion account. That's something that we're working on. It was PDO before the third quarter. It went into NPL in the third quarter. It's fully secured by a good property, so we're fairly confident about that, and we are in discussion with them and with a potential white knight to take over. On the real estate CTS issues, that's allegedly two-
About PHP 2 billion.
PHP 2.5 billion. Those two alone is 4.5 out of a loan book of 1.6. I can't do the math, but it's roughly there.
Okay. Great. Thank you, TG. On the institutional account, are you able to share what is the level of coverage that you have and what sort of nature of business is this?
Provisioning.
Provisioning.
Provisioning is 49% and then collateral.
Cover.
Collateral cover.
Sorry, 49% is the collateral cover?
No, no. 49% is already. The account is already 49% provided for with specific provisions.
We have about 51%.
About 51% collateral cover.
Yeah. Okay. Got it. The line of business, if you can share that.
Yeah. Industrial agri. Right?
Okay. That's interesting. There's also elevated write-offs this quarter, NPL write-offs. Could you talk about that?
Yeah. I think it's more of a timing issue. Some of the write-offs that we didn't have that much write-offs in second quarter, and those were delayed into the third quarter, but we did the third quarter on schedule. I think that was a big part of the reason for the elevated write-offs in the third quarter relative to second quarter.
Okay. Understood.
That was mainly in our cards division segment.
Okay. Gotcha. Thanks, Eric. The other area which has been a big concern for investors has been the unsecured lending, which I think gave a lot of color last quarter. Is that thinking still true that you've started tightening the model and you won't see that sort of pickup in NPLs anymore?
Yes. In the last quarter report, there was really a high report of an NPL. For the quarter, we have already tightened the tap to be able to control. These are actually really test programs that we did that resulted to higher NPL. We've closed those programs, and we know where it's coming from. Third quarter moving forward, those will not be booked anymore. It will improve. Thank you.
Okay. Great. The last question I have is just more high level one. TG, Eric, what are the chances you think that NPLR can actually go down to zero at some point?
At some point, Akash, like before 2029, fairly certain. Zero by next year, not sure.
No, next year, probably not.
I think the market believes there might be another 200 basis point cut next year. The governor has indicated that he would like it to be zero by the end of his term.
I think the reason I ask is there's very few countries around the world, and most of them are developed markets where we see a level of 0%. Most of the emerging markets tend to have, you know, higher levels. You really think BSP means that they can bring it down to 0% on the base?
Yeah. I think, Akash, in my discussions with the governor, we talk about, you know, what exactly does a reserve requirement achieve in terms of, you know, bank safety, when they can really control it with monetary policy. From a monetary policy point of view.
I think the feeling of the current governor is that there are better tools that reserve requirement ratio is a structural impediment. I think. I might be putting words into his mouth, but this is when I discussed with him, you know, the concept of a reserve requirement. Clearly he feels that there are better tools for monetary policy.
Okay. That makes a lot of sense.
Yes.
Thank you very much.
Thank you.
Thank you, Akash. We now have a question from Selvi Ocktaviani. Selvi, you can unmute your line now.
Hi. Can you hear me?
Yes, we can hear you. Go ahead, please.
Thanks for taking my question. I think there's a little bit of echo. I have two questions. The first one is on the rates. I mean, with the rate cut so far, how are you seeing the pricing power just in terms of like lower demand versus the competition and the likelihood of you able to maintain that spread? That's the first question. The second question is on the capital return. Because I think Eric also mentioned in the opening remarks that you are on track to return capital. Could you elaborate more on that? Thank you.
Selvi. I think when you take a look at what the effect of a BSP policy rate cut is, obviously there will be two effects. I think the immediate effect we will see clearly in the deposit levels. When you combine the 50 basis point cut together with the 250 basis point cut in reserve requirements, you'll clearly see deposit rates come down, which we are seeing today. That bodes very well for our NIMs. Certainly on the asset side, when you take a look at a loan book or when you take up loans that are to the corporate side, then there's a lot of competition there because the Philippine banking market clearly favors lending to top corporates for the credit exposure. That one, I think, will be challenged.
I think corporates will continue to be able to demand rates that are close to policy. That's the reason why we continue to focus to shift our book towards what we call the non-institutional book. Focus more on small business loans, focus on the consumer, which are less sensitive to the policy rates. Let me turn it over to Eric on his promise to return capital.
Yeah. Sure, Selvi. Thank you. With regard to capital return, I mean, as we previously indicated, dividends, our dividend policy is that we're gonna pay between 35%-50% of the previous year's net income in terms of dividends. Over the last couple of years, we've been paying it out at a 40% rate. As it stands right now based on our projections, including where loan growth is going to be, we believe that there's no real reason at this time to change the payout ratio. I think our current view is that we'll probably keep the current payout ratio.
Given the fact that earnings per share is up 16.5%, therefore it would point towards, you know, keeping that payout ratio. It would point towards higher dividends next year. That's the increased capital return that I was referring to.
Got it. Sorry, can I just ask one more question?
Go ahead, Selvi.
Thank you. Just in terms of the write-off rate for credit card, what is the write-off rate for credit card?
For the month of September, I believe it's about 3%.
Yeah. To the quarter.
On the quarter, it's about 2.97%-3%. Yes.
Okay. Thank you so much.
All right. Thank you, Selvi. We'll take a couple of questions from the Q&A chat box. We have two questions related to NPL. The first one is: Are you able to share the net income contribution of Robinsons Bank? And how big also is the NPL level and NPL ratio attributable to Robinsons?
Yes. Sorry. Yeah. So actually, to be honest, I mean, we gave information in relation to Robinsons Bank, in the initial. Especially in terms of the balance sheet, how much it's contributed. But the reality is that moving forward, it's more and more a gray area, right? Whether this was really contributed by Robinsons Bank versus BPI, given that the operations and the people have really come together, right? So, we're not really tracking that, and then therefore. We're not tracking it on that basis, and therefore we're also not disclosing it on that basis. That's in relation to the Robinsons Bank kind of breakdown, right? There was another question. On the NPLs.
On the NPLs.
Yeah. Same thing. I mean, basically, you know, the book is now one book. Therefore, you know, I think it's not really relevant whether the new NPL formation is coming from the Robinsons, the ex-Robinsons Bank book or the BPI book. It's just BPI NPLs at this point.
The reason we do that is because when you take a look at the businesses, for example, the top corporate credits, we have merged it. We've merged all the accounts and given it to respective account managers. It's hard to say that this account, which used to be both. Let's say an account that was both on the BPI and Robinsons Bank level, if they draw another loan, is that a Robinsons Bank contribution or a BPI contribution. Likewise, for the branches, I understand the Robinsons Bank branches are having very high cross-sell rates. Is that a Robinsons Bank contribution because they're selling a BPI product? So it's counterproductive already to say this is Robinsons Bank and this is BPI. We don't do that anymore.
At the start of the year, we figured Robinsons Bank was about 6% across the board of everything about BPI, and that's the way we take a look at it. Today, we take a look at the business as one. Even on the NPL, it's kinda unfair to say that the contribution of NPL is Robinsons Bank, because every loan we're booking today is part of what we call the BPI book, and so the loans are being paid down on the Robinsons book. And therefore, technically, the NPL will be rising there only because the denominator is shrinking and the numerator is not changing because we're not growing the denominator anymore because we're moving into the BPI book. We don't do that anymore.
Okay. Thank you, TG and Eric. On NPLs, NPL coverage has been trending downwards. Should we expect higher credit costs in the next few quarters? What is the level of NPL coverage that BPI is comfortable at?
First, on the first question of the trend for credit costs, I think it's reasonable for you to expect that credit costs should start to trend upwards in the coming years. We've viewed a kind of running through the cycle credit cost of something along the lines of 40-45 basis points as where a normalized level should be. Therefore, the current level, you know, 23 basis points last year, approximately 30 basis points this year was really a below trend. Therefore, we should come back up to a normalized credit cost over the next couple of years, right?
That's with regard to the credit cost. The second, sorry, was?
What NPL level of NPL coverage?
Yes.
Are you comfortable at?
Yeah. On the level of NPL coverage, theoretically, from, you know, viewpoint, you need as much, you need 100% NPL cover is sufficient. 100% NPL cover of where you expect loans to be, right? It becomes a matter of where you expect loans to be. In our view, you know, something along those lines, you know, 110% NPL cover looks like it should be sufficient for us, especially in the face of what we believe is an improving macroeconomic environment.
Okay. Thank you, Eric. We have a follow-up question on reserve requirement from Joseph Sinai. He says, "Congratulations on the strong results. If the reserve requirement is cut, then there will be a lot of liquidity coming to the market. How is BPI thinking about potential changes to competitive intensity?
I think the first thing we have to realize is that the reserve requirement cut is very beneficial to the bank. The way we would play that is, I think Dino says the first thing we would do is immediately throw it back to the BSP, right? If you think about NIMs, take the level, the policy rate of the BSP at 6%, 2.5 basis point cut, where peso deposits are roughly 85% of our deposits. 6% x 2.5x 85 gives you a lift of about 12 basis points on NIMs.
As you try to work it through your system, the next easiest thing to do is lose the time deposits, which are costlier, and use the funding that's made available by the reserve requirement cut. If you're able to lose the time deposits that are very expensive, slightly higher than the BSP rate, then you're actually ahead. Even if it's lower than the BSP rate because of the friction costs of a deposit, doc stamps and deposit insurance, which add about 175-200 basis points to the deposit level, you actually gain more by losing the deposit. Finally, obviously, the third play you would do is then lend it out at on the mortgage book.
Sorry, on the consumer book, where rates are significantly higher than the BSP policy rate. Those are the three ways you would play it. Certainly very positive for the banks, but obviously those, each bank then has to figure out the way they wanna play this extra liquidity that they're getting.
Maybe if I can just add also, in this environment, we're also expecting stronger loan growth, and that will also suck up some of the additional liquidity.
Okay. Related to that, could you please provide us the latest NIM sensitivity? You mentioned NIM could compress by 8 basis points for each 25 basis point cut. Is this still valid given the recent RRR cut?
Yes. Actually, I think that 8 basis point move per 25 basis point cut was given relatively early on in the process of rates going up. That continues to be the mathematical computation. In reality, what we've seen is that, as rates were on the way up, but also as rates were on the way down during the pandemic, we saw that many of the consumer loans did not move on a one-for-one basis in line with policy rate movements.
What we saw in practice, on the way up, was that the actual NIM increase that you could attribute to policy rate increases because we had to strip out the effect of the increasing mix of non-institutional loans. If we strip out that effect, then we would end up with a movement of about four basis points per 25. I think that's more likely to be closer to the sensitivity that we're gonna see moving forward.
Thank you, Eric. We have a question on teachers' loans. How large are your teachers' loans, and as a percentage of gross loans? What is the structure of these teachers' loans? Are you able to deduct teachers' salary when they default?
Teachers' loans is about 2% of penetration to the total outstanding balance. What's the second question?
What's the structure? Are you able to deduct teachers' salary when they default?
Yes. As a partner of DepEd, it's actually the process. The process is actually an auto deduction of the teachers' salary loans before they're paid out to the teachers at month end. Thank you.
Thank you, Jenny. There's a follow-up question on the mortgage NPL. The uptick on the mortgage NPLs, why was the developer's delivery of the projects delayed? What type of property is this?
I think the delay in the property, in the development has really been since the pandemic. There is already a lack of manpower at that time. They cannot come in full 100% of the time. Because of that delay over the pandemic, of course, the construction completion would also get delayed. We are very confident that the developer will be able to complete, since they already are back 100% of the time. It will just require maybe a year's delay to complete it, and it will eventually get paid. It's really technical, Pastor. It's not that the buyers are delinquent.
It's just that the turnover is delayed and therefore buyers will naturally not immediately pay the big amount, the balloon payment.
I think the concern might be, is it possible that this developer might not complete?
Not at all. It's a big developer. It's again, completion risk is not a concern here. Overall, if you look at the NPL rate of mortgage of 5.01, the impact of the delayed turnover on the total NPL is really 100 basis points. The real NPL level is 4.4%. Much lower than industry NPL. Even if you compare the 5% of mortgage at five, your NPL industry is 200 basis points higher. A big gap. Definitely, we can still take on more risk on the end buyer financing.
Has this developer ever failed to deliver?
Yes. No, Your Honor. No. Always able to deliver. It's not a question of whether they will be able to complete or not. It really is just a delay.
Ginbee, what type of property is this?
It's a condo, condominium.
All right. Thanks, Ginbee. We'll go through to Danielo Picache, who's online. Danielo, you may unmute yourself and ask your question. Go ahead, Danielo. Okay, we'll get back to Danielo. We'll go to Angela's question. What's the nature of institutional loans being availed by clients? What industries are they from? I believe Juan is online and is able to answer. Juan, are you online?
Yeah, can you hear me?
Yes, we can hear you. Go ahead.
There's still been an echo for those on Zoom. There's usually a delay.
For those who are on Zoom, may we ask you to close your speakers since it causes an echo. I think that's what our technical team is.
Okay. Anyway, I used my AirPods.
Go ahead.
It's still doing it. The question was what type of industries, right?
Yeah. What industries are the availments coming from?
Okay.
The nature of the loans.
It's still a good mix of industries. The corporate banking portfolio is still driven by a lot of big investment in different industries that are building, continuing to build capacity for future requirements. As I think Eric mentioned, the fundamentals in the world of alternative energy, we continue to see a lot of activity in the renewable energy space. I think energy will be an area of focus going forward. There are developments in the LNG space, which we are staying very close to, and activity there, both expansion and some change in ownerships. On the consumer space, I think the story that Eric and Ginbee were laying out for the bank reflects really the fact that the bank is expanding its customer base.
That means where the corporates operate, there will also be an expansion in their ability to reach more customers. While we have already equipped the bank, the corporate sector, as we reach out further down the spectrum of client base, we expect those businesses to continue to expand and get the benefit of the demographic profile of our economy. While on organic basis, we see slower growth in some areas, it's new acquisition that we're seeing. Therefore, there will still be a continuation of growth in the regulatory requirements. As Gigi mentioned, for the higher quality names, there will be stronger competition among banks as far as pricing is concerned. We'll see a good mix where consumer is being served and in the real estate sector as Ginbee was already explaining.
That should pick up maybe in a year or two. In some areas, we continue to see very robust growth like tourism, and in other underserved, residential activities. I hope that helped, Gigi. Echoes terrible.
Okay, thanks, Juan. We have Daniella wrote his question on the chat box. His question is: Any update on your credit risk prediction score initiative? Curious to know how your NPLs would look like if we exclude the impact of such as how you explained the adjustments in the second quarter of 2024.
Oh, okay. For the tests that we did in 2024 second quarter, we still have a little bit of portfolio on the personal loan side because those loans tend to run long. We've closed the test already, and as mentioned, there was a write-off also that happened in the quarter, which has improved the portfolio. We've closed that tests. Other PL tests are being done, and we're dynamic in being able to actually do tests and also close them as we need to learn what really can actually work in expanding the portfolio. There's really a lot of test and learn that we're doing for both credit cards and PL, and the more we learn, the more.
I mean, the more we are able to actually manage the portfolio in revenue and in risks. We expect the NPLs to actually still go down further because we're, like what I said, drawing down the portfolio. The through-the-door bookings that we have for both cards and PL is actually better than what it was in the first half of the year.
For the secured portfolio, that's auto, housing, and motorcycle. As I mentioned earlier, we're much lower than industry. Definitely that's something that is an opportunity for us, gives us room to test to do champion-challenger scenarios. We continue to penetrate and do lending programs that specifically target our depositor base, which means that we have a very high quality loan book and customer base for our accounts. Not to mention, these are secured. With the development of one score for BPI, which covers not only the secured but also the unsecured portfolio, our ability to look at it holistically will also bode well for us when it comes to risk management, credit risk management.
Overall, we believe that we can maintain our NPL ratios simply because we will continue to grow the loan books from a denominator basis. We will continue to grow the loan books even as the absolute number of NPL amount would grow. That means we will continue to be more inclusive, go down market, but also manage it from the point of view of total amounts involved.
Thank you, Ginbee Go. One more question from Daniella. Given the lumpy debt maturities in 2025 and 2026, can you share your refi plans, and is it safe to assume that you will be less reliant on wholesale funds in the ensuing years, given expectation of rate cuts and RRR cuts?
Yes. Thank you for the question. Good evening. Good evening, everyone. 2025 and 2026 debt maturities. Right now, we still favor wholesale funding, especially, for peso bonds because of the incentive brought, given by the BSP, for such issuances. If there is no advantage to issuing these bonds going forward.
We are likely to abandon it and go back to time deposits. For now, as TG said, for reserves to be cut such that there will be no, or the incentives of the BSP is going to disappear, I think that'll take a long time. In my estimation, for 2025 and 2026, we will probably continue to rely on this wholesale funding instruments.
Thank you, Dino. That was Dino Gasmin, our treasurer. We have a question on our private wealth business. I guess, Theresa, you can take this. Where are investable funds going, and what products, investment outlets now that interest rates are coming down and the peso on the weaker side? Can you provide some color on what drove the AUM higher? How has the client preference moved after the rate cut?
Thanks for the question. First, where are funds going? We're seeing some net flows at the moment still in long-term fixed income instruments. That has been the trend for the past quarter, particularly. There have been new issuances on the corporate side, and we saw investors starting to add positions in medium to long-term fixed income investments. It's early days for the equity portfolios, but because of decline in interest rates and what we call risk on sentiment, we are seeing some slow net flows into equity portfolios as well as medium to long-term bond funds, which has been our key recommendation because of our outlook for declining interest rates. It's early days for retail. We typically see retail flows into riskier assets towards the mid to end of a rally in terms of a market cycle.
That's for the first question. Second, how has AUM performed? Where-
How has the client preference moved after the rate cut?
That.
That one.
After the rate cut.
Um-
The AUM is.
Where-
What's driving.
Yeah, inflows or securities valuation.
Um, for-
Which products?
Yeah. For the first nine months of the year, we saw very strong growth in AUM. We are tracking 20% growth in AUM, and that's across segregated portfolios as well as investment funds. Segregated portfolios is growing at a stronger pace, about 24%-25%, while investment funds are growing at about 16%-17%, but still strong compared to what we saw in the previous year. In the first nine months of the year, we saw AUM, the growth in AUM of 20%. About 65% of that growth is coming from net flows, and around 35% of that growth is coming from market revaluation. If we look at ourselves versus the industry, we have a more diversified a set of investments. The portfolios are more diversified.
You would see that in periods of rising equity and fixed income valuations, our AUM is more sensitive. Because of favorable market conditions, we are reaping the benefits of higher AUM valuation coming from market change.
Tere, there's a follow-up question. On private wealth, how do you position private wealth versus competition?
Well, what we have done with private wealth since we rebranded about a year and a half ago, was to position it as going beyond banking. That's when we launched what we call the BPI Private Wealth Signature Experience, where we focus not only on elevating our services in terms of banking needs, but also we elevated our services across the other pillars of what the wealthy families need, which is around investments, around planning, estate planning, legacy planning, and also providing curated lifestyle experiences. It's a holistic approach to going beyond banking, and that's how we differentiate ourselves versus competition.
Okay. Thank you, Tere. We have a couple of questions from Melissa Kwan. Given your focus on retail loans, will you try to do a test run again into another separate new segment of retail, or what will your focus for growing retail loans be?
Melissa, I think the only way to continue to expand is to continue to run different test programs to try to look for different areas where new credits can be given. We will continue to run test programs, as Ginbee and Jenny said. We will continue to run test programs to look for different markets to try to acquire new customers to expand the credit.
One of the targets we have is we have a clear idea of where we want the NPL ratios for different products to land. At this point, for example, the credit card, the current NPL ratio for credit cards, while Jenny says it's going down, is below the target that we have set internally where we want it to be, which gives us room in the business to continue to run test programs and expand that way. I think we're very committed to grow our consumer book, and that growth will be driven by new credits and new acquisitions and new customers on that side. Really driven by test programs and marketing to our current customer base.
Okay. Thank you, TG. The second question from Melissa. On growth, earlier you point to more robust credit growth. How sustainable do you see underlying credit growth into next year? Do you think we can see further acceleration in momentum? Can you share your loan pipeline for the year ahead?
I'm very confident that loan growth next year, particularly on the institutional side, will be stronger than what it will be this year, driven primarily by what we see as rise in confidence on the corporate side to make the investments that they've drawn down this year. What we've seen actually is that we've had an increase in the number of lines that have been applied for. The approvals we've given, and now all we're waiting for is people, the corporates to draw. I think on the consumer side, we continue to be fairly bullish about that. We believe confidence remains there, particularly on the segments that we're targeting, and that's why we continue to grow our efforts on our main lines, which is credit cards, mortgage, and auto. Obviously, we've got some new lines courtesy of Robinsons Bank.
Our Teachers' Loans is a new product that used to be sold only through a limited number of branches. Today, we are marketing our Teachers' Loans throughout the whole BPI network. Motorcycle Loans is a new product that we've had. We've only started it. It's already up 12% this year from last year. That was a product that we didn't have that was solely with Robinsons Bank last year, and it's a product we're learning.
Okay. Thanks, TG. Akash, you have a follow-up question? You can unmute your line. Go ahead, Akash.
I've just lowered my hand. Thank you.
Oh, okay. Daniella, you have any other questions? You still have your hand raised. Okay. None. We have a question from Cristina Ulang. How many bank branches are expected to be added or closed this year? And what's the expected year-end branch network count, and that of 2025?
We're looking at consolidating this November 13 Robinsons Bank branches. So that would bring us to around 850, 855, thereabouts. Next year we're looking at consolidating additional branches, but also opening new ones. We're looking at 25 new branches in new areas where we are not yet saturated, but we're also closing about 70 branches coming from the Robinsons Bank consolidation. We continue to look at our branch optimization. We have a model that determines where we are more saturated, and therefore we need to close down our branches. Also in areas where we don't have enough presence, and we need to serve them more or better by opening branches.
Of course, these are all, done with a view that there are alternative channels that are available for us to service and acquire customers, one of which, as mentioned earlier by Eric, is agency banking, and the second is also digital. Currently, our digital channels in tandem with agency banking is already accounting for more than 50% of new-to-bank acquisition. We look at it holistically. The objective is really to go after new-to-bank, customers and serve our existing customers better through the digital space.
Okay. Thanks, Ginbee. Any questions here on the floor? Yes, go ahead.
Sorry.
Go ahead.
Diyi here from JP Morgan. Just a few follow-up questions. First, on asset quality. If you look at your NPL formation, I think it's around PHP 9 billion in the quarter. I think you explained around PHP 4.5 billion earlier. Just want to understand where the rest is coming from, and is that what you expect as more normal?
Sorry, can you just repeat those numbers?
NPL formation in our estimate is close to PHP 9 billion-
Mm-hmm.
For the quarter. You explained PHP 4.5 billion, so we want to understand where the rest PHP 4.5 billion is coming from.
I mean, so I'm just checking some of my notes here. In general, we are going to see. I mean, new NPL formation is not unusual for the bank, right?
Sure.
We expect new NPL formation to start to come down over time, especially as rates start to come down. As also mentioned, there really is gonna be a seasoning period, right? Even as accounts start to turn current.
It takes six months for that to then reflect on the books as becoming current. I mean, in terms of the disclosures, right? So there really is a seasoning period. I think one of the things that I mentioned was where NPLs would be if without the seasoning period, which I believe was 2.06%. Yeah. So it's a little bit. On a net basis, it NPL level is PHP 3.2 billion up, right?
Okay. Understood. Yeah, there were write-offs, so you add that back.
Yeah.
The formation is higher. Anyway.
Yeah.
I guess moving on to similar question along the same lines. On the credit cost side, I understand you guys are planning for specific NPL levels.
Mm-hmm.
Just want to understand on consumer, non-institutional, do you program for a level of credit costs as well?
Both on the consumer level, especially when you have a tendency to look at things on a portfolio basis, then it's really more, we really have a tendency to look at it on target levels, target NPL levels, per consumer book, right? That and as well on the business banking microfinance side, where you really have a tendency to look at it as a portfolio, right? On the institutional side, that one we look at less on a portfolio basis and more on an individual basis. And therefore, it's less targeted on as, oh, we're looking for a 1% NPL level on institutional.
It's really we're looking to on a per account basis, is this an account that we believe we should be lending to? Sure.
Sir, if the answer is yes, you are correct. For the consumer book, it's very formulaic. What's the provision? It's very formulaic. What goes into NPL is just based on schedule, and what we provision is just based on our level.
Okay. I guess where I'm coming from is you guys used to do like 30-40 basis points as normalized, before pre-pandemic, I mean, pre-pandemic. Now you're guiding 40-45 basis points, which is about the same range. I guess the question is, as you shift more to consumer through these test programs, should you expect credit costs to be a bit higher?
40-45 basis points is where we believe it's going to be over the next, like into 2025, maybe into 2026, right? Obviously, if we were to continue to shift, which we believe we're going to do, right? As we continue to shift more and more towards consumer, we would also expect credit costs to start to pick up. Over the next year to two years, we think 40-45 basis points is the appropriate level, right?
Understood. Last one is on payments. There's use of payments potentially going to zero. Any comment on that? Do you think that's likely and potential impact to you guys? Thank you.
Politically? I understand where the BSP is coming from. I understand what they're trying to do. I think, zero person-to-person fees is good for the consumer. Obviously, as a bank, we have revenues that arise from that, and those revenues, if the circular were to be in effect April 1, we would lose those revenues. I do understand also that in discussions that have gone back even prior to the governor, the current governor, discussions with Governor Felipe Medalla, was that, the idea was that a reserve cut would compensate for that. They have done the reserve cut, and now they've proposed a P2P waiver of all fees. Obviously, there is some pushback from some banks. There are some comments on the circular. Certain players in the payment space are against it for obvious reasons.
As a bank, as BPI, we understand where they're coming from. We understand the benefit we get from a reserve cut, and we understand the benefits that would redound to the consumer going forward. We're very quiet about the objections. Dave, to be honest, when you have free P2P payments, it opens a lot of potential for a bank to work in the payment space where the payment space might be any bank in the world. In any industry where the payment space is dominated by a single player, free payments have opened up that market to the banks, and the banks have really become major players because of that.
Thank you, TG. Any other questions on the floor before I go to the Q&A box? None. We have one final question. Will there be a face-to-face stockholders meeting in 2025?
We're evaluating that. I think it's something that we need to think about and coordinate with the rest of the Ayala Group. We will get back to you on that.
Okay. Thank you, TG. One final call. None. Okay. Thank you everyone, for joining us this afternoon. Thank you for your questions. Before we end the call, may we ask TG for some of his final thoughts?
Thanks to everyone for coming here today and joining us. Thanks to my colleagues for answering the questions. There's one thing I just wanted to make clear, a question from Daniella about wholesale funding. I think there's the misconception that wholesale funding comes from institutions. Our funding that comes from our bond issues is primarily geared towards a retail network. We have a very strong distribution network. When you look at the customer base that holds our bonds, that's very retail, basically our existing customers. The reason we like it, as Dino said, is that it's actually cheaper for us because of the lower reserve requirements that we have to hold. Secondly, one of the things that I've.
That we are looking at, as Dino did in the last bond issue, where he just did a year and a half tenor. We're trying to look and shorten those bonds, that paper even more to attract more and more of our traditional PD clients and into bonds, because actually it's the same funding, more efficient for us, and actually they'll actually get a better rate on the bonds because there's less friction cost. Just to disabuse the notion that wholesale funding means it's funding from institutions, a lot of most of our bonds are sold to the retail side. With that, I just wanna thank everyone for coming here today.
Let me reiterate that I think the bank is in a good place, that the performance, as evidenced by our nine months, is very strong, and we continue to execute along the things we said we would execute on. We see our performance continuing to take market share on consumer products and deposits and loans. We're very bullish about loan growth next year. We're comfortable with our NPL levels. It's something that we expect because of our shift to non-institutional loans. As I said, we do have a target for each of the products, and we will work towards those targets because of the belief that the margins that we get from these consumer loans justifies these kinds of NPL levels.
With that, thanks very much, and see you at the next briefing. Thank you.
Thank you, TG and team. Ladies and gentlemen, this concludes today's earnings call. Thank you for your participation. To those joining us online, you may now disconnect. To those who are here on site, please join us for some refreshments outside. Thank you.