Good afternoon, ladies and gentlemen. Welcome to our earnings call to discuss BPI's results for the third quarter and nine-month period of 2023. This is Chinky Lukban, your moderator for this event. I am pleased to introduce you to our speakers and panelists this afternoon. First of all, TG Limcaoco, President and CEO. Eric Luchangco, our Chief Finance Officer. Ginbee Go, Head of Consumer Banking. Derek Marshall, Head of Wealth Management. Jojo Ocampo, Head of Mass Retail Products. John C. Syquia, Head of Institutional Banking. We also acknowledge the presence of the rest of the BPI leadership team joining us on 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 this quarter's performance highlights and strategic updates. The floor will then be open to questions from the audience.
Just some housekeeping reminders before we proceed. Please identify yourself by your name and company, so we can address you accordingly. Keep your lines on mute to minimize background noise. Finally, this call is being recorded and disclaimers apply. Now, let me turn you over to TG for his opening remarks. TG Limcaoco, go ahead.
Thanks very much, Chinky, and good afternoon to everyone joining us on the call today. As you probably all know, we reported very strong earnings last Thursday, and we'll be happy to lend color to that. The strong earnings were really driven by continued expansion of our net interest margins, as well as strong growth in our non-interest income, which is proof to me that our digitalization efforts as well as our efforts in expanding our coverage, our distribution, as well as our marketing presence is beginning to pay off. Joining me today on the call are the management team, and we are prepared to lend as much color and answer as much questions as you have today.
A couple of notes that I wanna make at the very start is that as we look forward, we do see some headwinds going forward, particularly from, I guess, what I would call muted loan growth going forward, as top corporates tend to be postponing their decisions to borrow, either driven by the fact that they are concerned about consumer confidence or the fact that they believe that rates will soon turn the corner and go lower. So they may be postponing their decisions to draw down loans. We do have a healthy pipeline of potential loans, but as John C. may give color later, some of these loans may be postponed into the new year. Secondly, I know there's been some concern about our rising operating expenses.
The way we look at operating expenses going forward is that we're very focused on lowering our cost-to-income ratio, and we will continue to make investments in our technology as well as our distribution and marketing presence for as long as these investments in expenses, these expenses will deliver continued lift in our revenues and continued lift in profitability. Finally, as Eric will also point out, our NPLs have risen since the start of the year, but a lot of the new NPL formation is not a surprise to us as they had previously been provisioned for. Therefore, we continue to be comfortable with our level of provisioning and our continued interest cover. All of this we will provide more detail in Eric's presentation, as well as be able to answer more questions in the Q&A.
At this point, allow me to turn over this presentation to our CFO, Eric Luchangco. Eric?
Thank you, TG. Good afternoon, and thanks to everybody joining us on this call, our third quarter earnings call. We're pleased to report that the bank delivered another quarter of solid results. For the first nine months, the bank generated a record income of PHP 38.62 billion, up 26% from the prior year, largely driven by revenue growth. Excluding the impact of the one-off gain from an asset sale last year, net income would have been up 44% year-over-year. Return on equity further improved to 15.56% and return on assets to 1.95%, the highest levels in a decade. Loans continued to expand in the third quarter, though at a moderated pace.
The liquidity and capital positions remained robust, with LCR at 186.8% and NSFR at 150.2%. The capital position further strengthened, reflecting strong income generation, with CET1 ratio at 16.1% and CAR at 17%. Asset quality remains strong, notwithstanding a slight uptick in the NPL ratio to 1.97%. NPL cover remains more than sufficient at 159%. Finally, for the first nine months, the bank generated an earnings per share of PHP 7.81 per share, up 15%, and up 15% year-on-year and 31% excluding the one-off gain last year. We remain on track to return excess capital to investors.
We delivered a record quarterly net income of PHP 13.47 billion in this last quarter, driven by stronger revenues, notwithstanding growth in our operating expenses. Sequential quarter net income was at 3.4%. While compared to the third quarter of last year, net income was up 33.3%, driven by revenue growth of 18%. Pre-provision operating income was at 15.9%, while tempered provisioning down 60% also boosted net income. For the first nine months of the year, we delivered a net income of PHP 38.62 billion, up 26.4% year-on-year. The result includes net interest income of PHP 76.78 billion, up 24.5% year-on-year on higher NIMs and above industry loan growth.
Noninterest income at PHP 24.1 billion was down 6.6% due to a high base in last year's fee income from their gain from an asset sale in the second quarter. Netting that out, noninterest income growth would have been 15.2%. Total revenues at PHP 187 billion are up 15.3%. Operating expenses are up 21%, driven by volume related costs as well as growth in technology, manpower, and marketing expenses. Provisions at PHP 3 billion are 60% lower than last year, which brought net income to PHP 38.62 billion, up 26.4%. Excluding the asset sale, fee income would have been up 15%, revenue up 22.3%, outpacing the growth in expenses, and net income would have been up 44.1%.
We've delivered consistent improvement in returns in the past three quarters, ending the first nine months with an ROE of 15.56% and an ROA of 1.95%. Earnings per share for the period reached 7.81 PHP per share or 89% of last year's full year EPS, already above prior year's EPS, notwithstanding the additional outstanding shares from the distribution of common shares through a property dividend, which we did in June. The bank generated revenue of PHP 35.5 billion for the quarter, up 18.3% from last year. We saw another strong quarter in net interest income, up PHP 4.4 billion or 19.6% year-on-year to PHP 26.7 billion as hikes in the interest rate environment and continued loan growth drove growth despite a high inflation environment.
Trading income was at PHP 1.2 billion, down 6.8% year-on-year, while recurring income hit a record PHP 7.4 million, 19.2% up year-on-year, driven by volume supported by an expanded consumer base and higher customer engagement. Loans continued to expand quarter-on-quarter, though at a moderated pace. Year-on-year loan growth to 8.4% and remained ahead of the Philippine banking industry average as of August, the latest available industry data. NIM is consistently improving, expanding 50 basis points from last year and 5 basis points quarter-on-quarter, driven by asset-based expansion and higher asset repricing compared to the cost of deposits. Total loans stood at PHP 1.8 trillion, up 8.4% year-on-year.
The loan mix further improved with consistently strong growth from consumer loans up 20% year-on-year led by credit cards, personal loans, and auto loans. The consumer loan expansion benefited from the use of alternative channels, improved online applications, innovative credit score models, and increased marketing efforts. Credit cards are up 7.3% quarter-on-quarter and 37.6% year-on-year, driven by a 46% increase in billings versus last year. Auto loans are up 5.4% quarter-on-quarter and 22.3% year-on-year, driven by the good take-up of our MyKotse program. Mortgage loans are up 2.9% quarter-on-quarter and 6.4% year-on-year, driven by expansion in end user housing, up 9% year-on-year, which offset the decline in the CTS bookings.
Personal and microfinance loans, on the other hand, posted accelerated growth for the quarter. Personal loans are up 22.5% quarter-on-quarter and 115% year-on-year, inclusive of record new bookings amounting to PHP 2.2 billion in September. Microfinance loans are up 11.8% quarter-to-quarter and 34.3% year-on-year on a 36% increase in loan releases, aided by the additional 10 branches opened this year under BanKo. On an absolute basis, corporate loans still grew the most, up PHP 70 billion or 5.3% year-on-year, while remaining relatively stable for the quarter.
All told, strong consumer loan growth is consistent with our direction to increase our presence in this area, resulting in an improvement in loan mix, with consumer now cornering 22.2% of the loan book, up from 20% last year and 21.3% last quarter. On fee income for two years now, our focus has been on growing our client base and deepening client engagement through digitalization. Our incremental improvements for over eight quarters have produced a record fee income of PHP 7.42 billion, up 19.2% year-on-year. On a sizable increase in client base and client activities. While our top businesses have performed well this year, I would like to particularly highlight the card business, which has outperformed their peers.
Investments in the franchise over the past year, which contributed to the growth in OpEx, have also allowed the bank to gain market share in the card business across important metrics. The card base is up 524,000 or 28% from last year, and is nearly 1.5 times compared to the 2021 level. This should support recurring income moving forward. Card fees, which account for 29% of total fee income, were up 34.6%. Our wealth management customer account is up 29% year to date, driven by partnerships with GCash and PayMaya. 90% are digital clients. AUM is up 16% year-on-year, largely driven by steady customer flows rather than market valuation.
For all that, fee income is up 2% year-on-year as customers have shifted to investments with fixed returns given the market conditions. As market turns, we may expect higher contribution from the business given various initiatives under our OneWealth business, which collectively looks after the businesses of BPI Wealth and Trust, ALFM Mutual Funds, Private Banking, and the Asset Management business in Hong Kong, and hopefully soon in Singapore as well. Branch service charges up 14.4% on higher transaction count and loan releases on housing and auto loans. Insurance is up 46.2% on higher investment income and higher premiums. ATM and digital channel fees are up 14.7% attributable to the 22% increase in fund transfer transactions and a 53% increase in partner transactions.
The increase in partner transactions was driven by a higher client count and an increase in the number of partners to 100, over 120, providing more than 6,000 products and services. As we continue to grow our client base, converting existing clients to digital and onboard more partners, we expect digital channels to increasingly become an important contributor to fee income. Above increases were partly offset by fees from transaction banking, which is down 7.3%, mainly on a decline on supply chain financing, as contracts purchased years ago are approaching their tail end, resulting in lower balances and lower fees to collect. Securities brokerage and investment banking are down 17% on fewer notable transactions for the year so far.
Asset sales and rental income both down year-on-year due to a higher base last year from the sale of property and the loss of rental income as the property was being leased out prior to the sale. Our balance sheet expanded 7.2% year-on-year and 0.9% quarter-on-quarter to PHP 2.7 trillion, backed by sustained loan growth and expansion in the securities book. Our liquidity remained healthy, supported by a stable and reliable franchise. Liquidity coverage ratios stood at 186.8%, and the CASA ratio at 69.3%. Deposits increased 1.3% quarter-on-quarter and 6.7% year-on-year, with significant migration to time deposits.
We did see some competitive pressures as banks pushed prices higher, but we did not see the need to chase deposits with the rate. Loan to deposit ratio was at 80.19%, relatively stable quarter-on-quarter and up 151 basis points from last year. Moving on to OpEx. Operating expenses stood at PHP 17.2 billion, up 21% year-on-year. Our strong balance sheet and ample liquidity allowed us to continue investments in technology and manpower that will drive long-term value for our shareholders. Manpower cost is up 19.4% due to structural salary adjustments and a slightly higher headcount, though headcount is still lower compared to 2021. Technology expense is up 34.1% on continued investment in digitalization. Also, part of the increase driving technology spend are variable expenses related to business volumes and headcount.
Part of the investment in digitalization is booked as outright expense, even though it will provide benefits over a longer period. Other expenses include marketing spend, which includes rewards expenses up PHP 1.13 billion, which posted a notable increase as we expanded coverage of our rewards program to expand beyond credit card usage to loans, deposits, investments, and payments. We made it easier to view and redeem rewards points using our eWallet VYBE. Marketing expenses directly attributable to aggressive acquisition and usage campaigns for credit cards also increased. We continue to make progress in our efficiency initiatives. Our client base expanded to 10 million.
We serve this increasingly increasing customer account with higher headcount, but continue to increase the average productivity of our employees, supported by our digital initiatives. Cost-income ratio declined to 48.2%, although the usual year-end expense bookings is expected to push this up slightly. Excluding the impact of asset sale, cost-income ratio was down 41 basis points year-on-year. Although costs continue to grow on an absolute basis, we remain committed to seeing our CIR tighten moving forward. NPL ratios stood at 1.97% flat year-on-year and up 9 basis points from the prior quarter. NPL cover remains sufficient at 159%, allowing lower credit costs. Looking into segments, upticks in NPL ratio were seen in corporates, credit cards and personal loans, while auto mortgage, microfinance and SME have remained resilient.
The increase in NPL ratios in credit card and personal loans are a direct outcome of our deliberate strategy to add risk to grow our consumer book. Currently, our credit card loan book is 1.7 times pre-pandemic level, and personal loan book is at 2.6x the pre-pandemic level, with NPL ratios that are 130 basis points and 30 basis points below pre-pandemic levels respectively. We are comfortable with this outcome and based on these results, encouraged to extend risk a bit more, anticipating that the increasing tilt towards consumer loans will mitigate the revenue impact of declining interest rates.
Consistent with the guidance in previous meetings and to address concerns of our auditors on over-provisioning, we are on track in gradually lowering the NPL cover, which reached 180% in December last year from 88% in December 2018. During this period, we accumulated huge provisions by keeping credit costs elevated to as much as 2% in 2020. We continue to book provisions this year, though at a lower credit cost of 23 basis points to partly cover new NPL formation while allowing total cover to decline. For now, we do not see the need to book higher provisions than planned, as new NPL formation has remained muted, coming mainly from loans that we have already identified as problematic.
You may note from the chart shown that though NP total NPL levels are increasing, as shown by the red bars, these loans have largely been fully provisioned even ahead of coming into NPL, as shown by the dark blue bars, which show specific provisioning. Total provisioning is slightly up. Meanwhile, in the gray bars, you will note that restructured loans has been declining. Even if the NPL share of restructured loans, as shown in the dark gray bars, is increasing as a proportion of total restructured loans. In addition, our stage one and stage two ECL are lower compared to the start of the year, though total ECL increased slightly, driven by new loan bookings.
Altogether, we remain comfortable with asset quality in the loan book, as problem loans are coming from where we expected them to come from and have largely been fully provisioned. Turning to regulatory capital. Our CET1 capital improved to PHP 318 billion, and indicative CET1 ratio improved 48 basis points to 16.1% and CAR by 49 basis points to 17% as risk-weighted assets increased modestly. In the past 12 months, we've improved our CET1 ratio by 17 basis points, notwithstanding the higher cash dividends in the first half. Moving on to our digital updates. Our goal has been to acquire clients in the fastest and cheapest way.
We now have 9.85 million retail clients from 9.2 million at the start of the year, with 39% of new clients onboarded digitally through either our mobile app, eWallet, VYBE, agency banking partners, or GCash and PayMaya. Digital adoption among our clients remains strong, with 93% of retail transactions now digital. Converting clients to digital clients is key to our growth strategy and is progressing nicely with 3.52 million digital clients as of August. This is 7 times the 2019 count. Digital clients are 3.1 x more engaged and generate 1.74x revenue per capita, driving fee income. On our seven digital client engagement platforms, you may already be familiar with this slide from our last earnings call, which shows the current look of our apps.
We're also pleased to share updates on the new and coming soon features, which you'll see above, as well as progress made since our last earnings call on the key metrics we monitor, as detailed below. We have 130,000 signups to VYBE, 6.2 million users on the BPI app. 88% of BPI Securities customers are using BPI Trade, 266,000 enrollees on BanKo, 14,000 on BizKo, 44% penetration rate on BizLink, while development on our BPI Wealth app is still ongoing. We continue to evaluate customer behavior and market take-up of our digital platforms so that we can recalibrate strategies on how we become their everyday bank, integrated into their ecosystem and part of their every financial journey. We have recently launched BPI Salary On-Demand, the new addition to our long line of innovative products.
BPI Salary On-Demand allows employees to instantly access their earned salary in advance, anytime and everywhere, with minimal processing fee. The product is available in the PayWage app, and employees may withdraw up to 30% of their earned salary in advance. Since BPI Salary On-Demand is not a loan, it is interest-free but subject to a fixed processing fee. BPI Salary On-Demand is designed to complement BPI's payroll solution and offered exclusively to our BPI payroll clients. BPI handles payroll for about 4,500 companies with a total of 1.9 million employees. Agency banking is on track to expand the BPI network with 20 partners and more than 5,000 partner stores by year-end.
Many of these new outlets in green dots on the map are located in municipalities and towns where BPI does not have a presence, and many of them are open on weekends and holidays, some even 24/7. In addition to deposits, loans, and insurance products, clients may avail of salary on demand and make payments using QRPH. In the past quarter, we added two partners, Foodpanda and Lista, and two new products, bills payment and Salary on Demand. Cash-in and cash-out transactions, which will allow these stores to operate like a branch, will be available in the first quarter of next year. Moving on to Vibe. Vibe supports over 530,000 customers, 20,000 of which are new to bank. Current functions include payments and transfers.
VYBE also hosts our rewards program, making it easier for clients to view and redeem rewards points. VYBE has a critical role in meeting the call for 50 million customers. To make sure no one is left behind, VYBE offers three options to join depending on the customer's eKYC level. For anyone with a mobile phone, even without an ID, can enroll in VYBE Lite and may later upgrade to VYBE Regular using a valid ID. Existing BPI customers can enroll in VYBE Pro using their BPI online username. Wallet limits and functions are tiered according to the level of completed eKYC. We look forward to the pilot of cardless withdrawal, a unique offering among e-wallets by December 2023, which will improve VYBE's chances of acceptance success when we do a media launch, which we have scheduled for the first quarter of next year.
Moving on to our new mobile app, which we launched in March. We have completed the migration of features in the new app, launched the web version, and have decommissioned the old version of both the online and app last week. As of October 16, we have 4.4 million downloads in the new version of our app. The new app features an improved user experience and clients can start banking instantly via the app. The app also features AI-powered tracking and insights, a first among local banking apps, allowing it to offer financial advice, payment reminders, and actionable tips to help Filipinos improve their financial wellness. Looking ahead, we have a number of features to be added to the app, including enhanced debit and credit card controls, scan-to-pay for person to merchant.
For credit cards, special installment programs like credit to cash and balance conversion and mobile check deposit. This new BPI app is a key component to making the bank more accessible to Filipinos through physical branches, digital, and digital channels and platforms. In the third quarter of 2023, BPI continued to be an inclusive, innovative, and trusted pioneer in responsible banking. We entered into a PHP 250 million green bond deal with the International Finance Corporation, the proceeds of which are allocated to projects with clear environmental benefits. The deal is the largest deal to date IFC has with a Philippine bank. We established a responsible lending policy, further enhancing the integration of environmental and social risks to the bank's credit quality assessment process.
As part of the bank's continued commitment to financial inclusion via digitalization, reached over 800 active retailers, nanays or mothers, through the BPI e'Nay app, empowering sari-sari store owners to quickly, easily, and conveniently order, manage, and pay for their inventory. As part of the bank's continuous sustainability awareness, the BPI senior management team shared their knowledge in more than 10 sustainability-oriented events, reaching students, local government units, and small and medium enterprises, and even some larger corporates. Finally, BPI also partnered with DHL for their GoGreen Plastic Flyer Recycle Box program, allowing the recycling of parcel containers used by the bank for its operations. Lastly, on the merger between BPI and Robinsons Bank Corporation, the merger has been approved by shareholders on both sides, and the Philippine Competition Commission has cleared the merger.
We are now just waiting for approval by BSP and SEC, which we target to secure before January 1, 2024. Allow me to provide a summary of our presentation. On profitability, we saw improved profitability and shareholder returns. Revenue generation remains strong. Loan growth has moderated while liquidity and capital ratios remain very healthy. On asset quality, despite upticks in NPL, strong asset quality is maintained with more than sufficient cover. Lastly, on digitalization, we delivered strong client acquisition and higher customer engagement supportive of income growth. We will be monitoring closely the potential impact of higher inflation, elevated interest rates, and geopolitical tension to our business. We are confident, however, that the bank is well-positioned to respond to a changing operating environment in order to deliver growth and enhance shareholder value. Thank you, and we now open the floor to questions.
Thanks, Eric. Ladies and gentlemen, the floor is now open to your questions. There are two functions at the bottom of the Zoom webinar screen that you may use to queue. One is the raise hand function. I will then prompt you and unmute your line for you to speak. Alternatively, you may type your questions in the Q&A box, and we will read out your questions on your behalf. We'll take the first two questions from the chat box. The first one is coming from Yong Hong of Citi. His first three questions are as follows. Based on your pipeline and what you're hearing on the ground, what is your loan growth expectations for fourth quarter this year and for next year? Number two, do you think NIM has peaked in the third quarter?
How much of your loans portfolio has yet to reprice and your funding cost outlook? Finally, what should we expect from your comments on excess capital distribution to shareholders?
Thanks, Chinky . Let me take that first. First of all, I did mention that we are seeing kind of muted demand on the corporate side. I'll let John C. talk a little about that. I think we are optimistic, and we continue to hope to get 8% loan growth by the end of the year. That will be really driven by how well we can grow our corporate loan book, which makes up about 70%-75%. Although our consumer loan book is growing quite strongly. I am not too concerned about the loan growth on the corporate side because our corporate spreads are kinda narrow versus alternatively putting it into the BSP or securities.
We are very focused on continuing to grow our consumer book, which I think for the third quarter grew in excess of 20%. Secondly, the question about NIM peaking in the third quarter. Based on our ALCO reports and as we review it, and we're already practically through in October, we continue to see some expansion in our NIMs going forward, albeit quite at a muted rate compared to how it was growing earlier in the year. I think this is driven mostly by our ability to be very deliberate in our funding strategy. As Eric did mention, we are not competing aggressively for time deposits, which I continue to believe remains unreasonably elevated today from some banks that are continuing to try to grow deposit market share.
Finally, on excess capital, we will hold to our dividend policy, which we've articulated quite clearly, that we have a clear dividend payout ratio of 30%-50% of the previous year's earnings. I believe we can continue to hold on to that, in the second half of this year as well as next year. I don't know, John, if you wanna make a little comment about what you're seeing on the corporate side. That drives a lot of our loan book is about 70%, top corp or large corp, sorry. John.
Sure. Yes. Good afternoon to everyone, and thank you for joining us today. Yes. To build a bit more on what TG just mentioned. Definitely for capacity building for different various sectors that we serve. We're seeing more of a delay rather than a cancellation of projects. Delays, I think as TG had mentioned in the early part of the introduction part of our call, is due partly to expectations on managing expectations on rate movement. Secondly, a better view on some clients take a better view on prospects of their respective sectors. For all intents and purposes, I've not seen in our pipeline total cancellation.
What you might want to look at is more of a shift, timeline-wise, of some of these CapEx projects, no? That's for those that are under control of our clients. I think I mentioned in our last earnings call as well. There are some projects that are at the mercy of approval processes, no. There have been some privatization transactions that have taken place or M&A transactions that have taken place already, but are subject to approval of different regulatory bodies. That one definitely also adds to some of the delay for CapEx loans that we have in our pipeline. Maybe I'll add some color also on the working cap side.
I guess in a way, you know, the difference in the way our GDP growth makeup has looked like is definitely the super solid strong growth on the consumer side. There is this phenomenon where while prices have gone up and then values of trades have gone up, the actual volume of units is not growing at the same pace, and that's because of the inflation effect. What we're seeing in working cap build up for inventory in the last two quarters, which is second and third, it's been less than what we originally expected. What we're hoping to see is that there's still going to be a build up towards year-end to serve the typical Christmas rush. Maybe I'll stop there, TG, and see if there are follow-ups.
Okay, thanks.
Could I also give additional flavor, TG? On the consumer book side, particularly auto and housing, we see very strong growth and demand from both areas, in particular auto loans. Our auto loans book had grown by 21%, really driven by our new program that targets the lower income, wherein we offer the MyKotse, which has a longer term tenor. 11% of our growth this year is driven by MyKotse, which really shows the strong growth and demand from the more affordable models. Affordability remains to be a strong driver for the consumer loans book.
Therefore, a lot of the lending programs and new products that we have in the pipeline is really geared towards increasing and expanding our universe of pre-qualified consumers and also making lending more affordable to more Filipinos. You've seen 6% growth. You've heard the 6% growth on retail mortgage. That's really driven by regular housing loans, which means that there's still demand in the pipeline. We see good growth primarily driven not just by lending programs, but by strong partnerships as well with our developers. We have been very keen on making sure that we accredit more and more developers to make more housing projects available to our customers.
Our depositors remain to be the main source and driver of our loan books, and that is also why from an NPL standpoint, we have already returned to pre-pandemic NPL ratios, which again is a signal that we are ready to become even more aggressive in the coming months and the following year. At this point, let me turn you over to Jojo for credit cards.
Yes. Maybe I will also address the question of one of the in the chat box addressed by Elizabeth Santiago with regard to her question on what percentage of credit card performance is driven by new clients. We have actually acquired for 2023 about 400,000 new principal customers. That's about 20% of our customer base. This new acquisition, which we have actually done in the last two years via an aggressive card switch strategy, has actually led to a growth on the spend per card by 46%. That's the actual number of purchases on the card by 46%, leading to credit card loans growth of about 38%.
This is significantly stronger than the growth of the market, where spend on the card had actually only increased by 35% versus our 46%, and loans for total industry up by 30% versus our 38%. Now, to the question of Elizabeth, the growth on credit card loans, about 20% of that is coming from new customers. Our aggressive acquisition has actually driven both spend and customer base as well as loans as well as new customer loans. Now, with regard to what percent is coming from grabbing share from competitors. Actually, grabbing share from competitors, you could say that the balance 80% has really been driven largely by grabbing share from competitors, given the significant increase in our credit card loans and credit card billings as compared to industry growth.
Thanks, Jo. We'll move on to the questions from Joe Soriano. First, on asset quality, what's the gross NPL ratio and cover of your consumer segment? How about for credit cards specifically?
Well, I just did the calculation. For our consumer book, our NPL ratio at the end of the third quarter was 4.34%. I'm not sure whether we actually have. We break out the NPL cover for that. I don't know. I know we have specific provisions for the consumer book based on very clear formula as to how many days past due they go, as opposed to, let's say, a corporate loan, where we can make specific provisions based on our assessment of whether that corporate will pay. I know in the consumer book, we do have a very clear formula. Like, if a consumer loan goes 30 days past due, then you put so many provisions. I think over 90 days, you begin to already talk close to 100%.
I don't know, Jo or Ginbee, if you wanna put some color there to educate.
Yes. For credit cards, NPLs. Our NPLs are still very low at about 3.5%-4% level, which is still very low compared to the industry. Our cover is at 1.42, so we have sufficient provisions for our NPLs.
Yeah. Housing and auto loans are collateralized. Our NPL cover is really driven by our expected credit losses. These consumer loans, because they're collateralized, our NPL cover would be around 70%-80%. But having said that. If you consider collateral cover, that would be more than 150%-180%.
Sorry, I stand corrected. Our NPL cover for credit cards as of September is 1.8, in fact, larger than the 1.4 that I told you earlier. Our NPL ratio is at 3.47, to be exact.
Okay. Thanks, Jo and Ginbee. Joe's question is, number two, is what's the comfort level of the bank in terms of investment securities as a percentage of total assets?
Maybe I'll let Dino answer that. Really, from a management point of view, we would rather be lending into the market than putting into investment securities or government securities. It's really driven by excess liquidity that we have and then a long-term funding strategy that Dino as treasurer is allowed to take. Dino, maybe you wanna give some thoughts on where we stand in terms of our total investment security and your view on the market.
Yes. Hi. Hi, good afternoon, everyone. I think Eric showed earlier the growth in our securities portfolio. It's about PHP 16 billion, I think, from start of the year or thereabouts. It's actually small. Most of this increase is actually in short-term securities, no? It's just parking some extra funds that we have. Our base case is that rates are going to stay higher for longer, so we're not buying very long-term securities at this point. We'd rather wait for how monetary policy unfolds, not only here in the Philippines, but also in the U.S. because it has a significant impact on the local markets. We're still waiting for the right time to invest heavily in the government securities.
Okay. Thank you, Dino. Joe's last question: Can we expect NIMs to continue moving up in the fourth quarter? With NIMs likely to remain elevated through to the first half of 2024?
I think I spoke about that already, where I talked about our ALCO reviewing our NIMs for October being higher than September and higher than the third quarter. I do believe that we will continue to see these types of NIMs going into next year as well as for the first half of next year.
Okay. Thanks, TG. The next question is coming from Francis Subido from AP Securities. Does management foresee any one-off integration costs arising from the merger with RBC? Around what range will it be? Is there potential complexity in the integration of RBC's infrastructure into BPI?
The one-off cost that I see with the merger with Robinsons Bank is reformatting their branches, which I think we plan to do over the next two years, basically painting them green into red. I think we will be rationalizing the number of branches that they have and our branches as well. There is a big cost temporarily as we move their data center out of the Robinsons or JG Summit data center for us, but eventually moving all their systems onto our platform. I do not think there is significant complexity in integrating their operations into us.
That is a relatively smaller operation, and the way we have worked with the management team of Robinsons is really to try to move as many of their clients and as many of their products onto our existing product base with the exception of motorcycle loans and teacher loans. One variant of the credit card, I think, Joe, right? Otherwise, it's gonna be a fairly simple integration.
Okay. Thanks, TG. We'll take a question from DA Tan of JP Morgan. DA, go ahead.
Hi. Thanks for the call. Can you guys hear me?
Yes, we can. Go ahead.
All right. Just two questions from me. First is on NPL cover. You guys have been running it down the last few quarters as you've been providing around 20-odd basis points credit costs. I recall you had some discussion on your conversations with auditors as well. If we look at pre-COVID, your NPL cover is closer to around 120. My question is, are you still comfortable running it down further? Any target here? And how should we think about credit costs going into next year?
Maybe I can take that. On the discussions, as you do know, and as we've mentioned, we have had discussions with auditors about bringing this NPL cover down. We're expecting to probably end the year at about 150%. If conditions hold up as they are right now, we expect we should be able to take it down a little further through the course of next year. We're continuing to monitor the situation. Obviously, we do wanna be very careful and monitor very carefully how the economy evolves in the coming months. If things do hold out as we believe that in the condition that they are now, then we believe we have room to take it down a little further.
Any early thoughts on credit costs next year as well? Will it be the same range as this year?
Credit costs, relative to this year, will probably be a little higher, but not anywhere near the kind of levels that we had during the pandemic.
Okay. Clear. My second question, actually last question, is on cost. This year we're running at elevated cost. I think you clearly articulated that you're targeting cost to income and not the level. How should we think about the growth here? Like, going to next year, should we start expecting a sharp deceleration in cost growth?
Certain aspects of our cost structure will be better contained than others. However, as you probably know, you know, we still a lot of things that we wanna do on the digitalization front, on the technology front. I wouldn't expect technology costs to the rate of growth there to move down very quickly. As well, we will also need to, I guess, launch a lot of these products or services publicly, which means that some of our A&P expenses will likely remain at a fairly elevated level. Other than that, we should see some of our costs, some of the cost growth that we saw this year come down.
Okay. That's clear. Yeah, that's all from me. Thank you.
Thank you, DA. We have another question from Anand Bavnani, related to Robinsons Bank merger. When do you expect it to be fully completed? Robinsons Retail acquired 4.4% stake in January 2023. Is this transaction in any way related to the acquisition of stake in Robinsons Bank?
Well, we hope to get approval from the BSP within this quarter so that we can effect the merger on January one. Obviously, the integration will take place beginning after January one, and the longest part of the integration will be the conversion of the branches. As far as our conversations with the Robinsons Bank management team, we are working together very closely, and we believe we will have a very integrated operation beginning January one in terms of client coverage, servicing the clients for both the Robinsons Bank and ourselves. As to your question as to did RRHI buy the 4% because they are getting 6%, I think the answer is obvious, but you'll have to ask them on that.
Thanks, TG. Harsh Modi from JP Morgan. Harsh, go ahead with your question.
Hi. Thanks, TG, for allowing me to ask question. Rather straightforward one. If you think about 2024, 2025, how do you see corporate credit outlook? Because a lot of promises when the administration came in on some of the projects seems they are kind of getting delayed. And also there's some hopes of FDI coming in. So as you talk to some of your other peer industry leaders as well as administration, how do you think the view on corporate credit demand changes? What are you seeing in the pipeline in terms of project financing for next 12, 18 months? Thank you.
Thanks, Harsh. Maybe I'll ask John C. to add color, but my quick view there is that I really believe that the reason loan demand in the corporate sector today is weak is because in the third quarter, many corporates believed that the rate cutting was just around the corner. Talking to corporates as to sentiment, I think they continue to be fairly positive about the sentiment, and many of the CFOs were just trying to, you know, sharpen their pencils and wait for the rates to come lower.
I don't think that's happening, and I think, as the year comes to the end and early next year, they will realize, if they already haven't realized, that we're here, we're gonna have these higher rates for a little bit longer, and I believe they will continue to, at that time, begin to start drawing. Secondly, I think there is a lot of interest in project finance. We do have a good pipeline. Some of it has gotten postponed. For example, we were very hopeful about the airport that was supposed to be awarded as an unsolicited proposal. It's now turned into a bid, and now the bid will be opened on December twenty-seventh. We hope to get. Regardless of the winner, we hope to be part of that financing.
We have other projects that are slightly delayed, as John C. said, but by no means are the corporates taking a negative view about the economy. John C.?
Yeah. I don't need to add much, TG, but thanks for that question, Harsh. I think, if you look back only to what's already been taking place, for instance, this recent Coke transaction, it's not only Aboitiz that is making investment, but they're partnered for that transaction with an international company. There is interest. I think, we are experiencing, or what we're witnessing is par for the course as far as changing views of some international investors, for instance, those that would have exited in those transactions. There's no lack of interest for FDI from the standpoint, I think if you were alluding to what may have happened from a regulatory or political standpoint.
I think many of the locals and international investors who are looking at this space have already learned that in many countries, and that's why I started that rather than just the Philippines, when we talk of regulatory risk, there really is a political element to it. They've managed formulas already that make it feasible. They know how to partner with locals. They know how to manage that risk. As TG points out, it's more a delay. I think our demographics in the country still bode well for us looking at expansionary growth rather than one where it's managed.
Thanks, John C.. TG , there's a bigger question here, TG , which I'm a bit worried about. That there were some investments which are coming through in conjunction with China. Seems like there seems to be a policy decision to kind of unwind some of those. The alignment with U.S. seems to be kind of more work in progress. That was the angle on the foreign collaboration. Is that it or the point that you made, let's say if you end up getting 100 basis points higher cost of funds or bond deals go to 6% in U.S. and what have you, is it more a matter of can they pass on, as in can they generate higher IRR for those projects, and hence it takes another year to get it passed where they can get it done?
Is it just a matter of couple of months? Because that is the biggest slice. I know you're doing phenomenally well on everything outside of corporate. It just seems we are at multiple headwinds to corporate credit. Nothing on BPI, it is more at an industry level.
Yeah. No, I think the long answer there, Harsh, is it's really a wait and see. The president and the investment team is doing all that they can to try to drum up interest in the country. As John C. said, the Coke transaction is a great example of a foreign investor putting significant amount of money in the country. I think that should continue. I'm not surprised by the turn in China. I think China has its problems. I don't see how, you know, we can look for more Chinese investments and I don't think BPI has put a lot, has hung our hat on trying to attract or grow our credit book from Chinese interest.
We are hopeful that we will get investments from the Western side of the globe and work with our traditional partners to try to make investments in this country. There are issues with higher rates. Agreed. I think even when you take a look at the higher cost of funding on the dollar side, that's gotta be something that they've got to work out. That all gets translated when they do the bid. All of this is infrastructure that in the end, the government knows has got to be built, and I think there is capacity to pay for that in the country from the consumer side.
Got it. Thank you so much for that.
Okay. Thanks, Harsh. We have related questions here from Akash and Melissa Kwong. On particularly on the credit card portfolio, many investors worry that there have been other banks in the past who have tried to grow credit cards portfolio aggressively and didn't work out so well in the long term. What is BPI doing differently? John?
I guess firstly, we have a very huge customer base. As Ginbee mentioned earlier, we now have 10 million customers. The first thing that we do, although we do try to get card switchers, is to really mine our depositor base and use alternative methods of credit based on their number one, ADB balances, number two, how they transact in our mobile app, number three, the payments that they make within the BPI ecosystem. That is still our primary source of growth. I guess that gives us the assurance that we kinda know the customers that we are acquiring. While 40% of our clients are now acquired digitally, they are still our BPI depositors. I hope that answers your question.
That's why we're kind of confident that we have a background on them, both demographic background as well as transactional background with regard to how they manage their deposit accounts, how they make their payments, and how they transact on our mobile banking.
From Melissa. You mentioned on the consumer book in personal loans and credit card segments that you have added risk to this segment. Can you share more on this new segment you're adding? What are you seeing on growth from this segment contributing to your total growth moving forward?
Yes, we have, as mentioned, we have taken more risk, but likewise, our penetration rate of our existing client base is still very small. Specifically, for credit cards it's at 17.4% and for personal loans about 2.2%. The kind of risks that we're taking or the universe expansion initiatives is, if before we were very ADB based alone in terms of granting credit, now we take into consideration the total behavior, as I mentioned, but in terms of the payments, in terms of how they transact in our mobile app, in terms of the payroll and salary credits. That's with regard to our customer base. With regard to customers outside the BPI depositor base, we actually also overlay telco scores from both Globe and Smart.
We overlay them with our internal credit score so that we're able to approve those that I guess are on the margin.
I think it's worth mentioning that we continue to push on these, what we call the personal loan segment. What I would call the non-traditional or the non-secured, the unsecured consumer loans. When you take a look at our credit card book, when you take a look at our personal loans, when you take a look at our microfinance book, they've grown significant amounts. The card business has grown 38%, personal loans have grown 115%, and the microfinance book has grown 34%. If you take a look at those three segments alone, in the last 12 months, the growth in terms of pesos is PHP 45 billion.
While it's nice to take a look at the NPL ratios and the NIMs from that, people forget that a significant amount of the income generated from those portfolios is the fee business, right? The payment fees, late payment fees, interchange fees that we get from the cards. I think it's a mistake just to look at the net interest margin from these loans. You need to take the total loan, the total business that these three segments provide us. That's why we continue to push and build that business very aggressively. As Jojo mentioned, the card business, I've told her and her team many times, you know, an NPL ratio of 3.4% business means we're not taking enough risk in the card business.
Yeah. Thanks, TG. So with that, in terms of credit cost, is the growth in the consumer business going to affect credit cost? How do you see credit costs in 2024 as rates likely to remain higher for longer? If our credit cost is running below normalized levels, is this the new normal or will this normalize upwards?
I think Eric has already said that we think it will normalize slightly higher next year, but of course, we need to take a look at how the situation unfolds. I think when we take a look at what kind of provisioning we have, we need to take a look at what kind we expect to move from our stage two into stage three or into ACA and then to NPL, the kind of provision we do for that, as well as the kind of collateral we hold against the larger loans, particularly in the corporate side. It's nice to say that I've got 150% NPL cover, but we also have to realize that a good portion of our loans that are in NPL have collateral against them, right?
We need to make sure that, as we do our provisioning, we take all this into consideration. Do we expect to provision only PHP 4 billion next year? Probably not, right? Probably not. I don't think we're going back to the levels towards the end of the pandemic, where we were provisioning maybe 70 basis points. I don't expect that next year.
Thanks, TG. We have one question from Lisa Marie Salinas: What is the percentage of BPI's loans that have repriced as of the first 9 months of 2023, given the rate hikes that started this year, and the percentage of loans on fixed rate?
Generally, our loan book is composed of about close to 30% of our loans repriced on a period more than one year. Given how long it's been since the last rate increase, I would say, you know, it's largely only this 30% that has not yet repriced. Maybe a little more than that, but it's really just a very small amount. I would put it at about 30% has not yet repriced based on the latest rate increase that we saw in the first quarter of this year.
Okay. Thanks, Eric. I think that's about it, for now, unless there are any other hands raised.
Akash is asking what's our view on BSP rate hikes. Maybe I'll let Dino go first, so I can disagree with him. Dino.
BSP rate hikes. I think we may be looking at one more, not most. That's our base case right now. The probability is I think they'll stay at these levels until the end of the year, unless the Fed raises, no? What I'm afraid of is the escalation of geopolitical tensions, no? Because that could mean higher oil, that could mean higher commodity prices, and as you know, that's going to affect inflation locally. If we hope these geopolitical issues do not escalate and be contained. If so, my best guess is that it'll stay at these levels for a while.
Good.
Thanks.
Okay. I think there are no other questions in the chat box. Well, we'd like to thank all our participants for attending this call this afternoon. If you have any other additional questions, do reach out to us in our investor relations mailbox and we'll get back to you. Before we sign off, TG, any last words for our guests this afternoon?
I just wanna thank everyone for being on this call, as well as my colleagues. I do hope that we have answered your questions properly and as transparently as we can. We continue to be very positive about the performance of the bank going forward. We continue to stick to our plans. We continue to invest to target the 50 million customers that we hope to have by 2026. We continue to put importance on our sustainability agenda and making sure that we do have a responsible operations as well as building our financial inclusion, I guess, strategy.
With that, I think also, Chinky, just we do want to make sure that I think in our first year, or sorry, our full year results next year, we'll try to have an in-person briefing with as well as to stream it the same way. Have in-person briefing so there's better engagement with the people and who are present locally. With that, thank you everyone for attending.
Thank you, everyone. Thanks for your participation. You may now disconnect.