2015 Joint Message from the Chairman and the President & CEO
HOLDING TRUE TO OUR VALUES
The Bank of the Philippine Islands celebrated its 163rd anniversary last year. As we cross the threshold into a new year, we are proud of the fact that we remain true to the values that have defined us since our founding in 1851. We are committed to our clients and our team of unibankers remain focused on one simple goal: Helping clients achieve their financial aspirations. More importantly for shareholders, we continue to build on our tradition of strong corporate governance as our way of keeping the foundation of our business strong. We also remain committed to delivering robust financial performance by working hand in hand with a seasoned management team—one that delivers superior profitability while taking prudent risks.
We have set a series of high benchmarks for quality of earnings, cost efficiency, and profitability. Last year, BPI recorded both net income and total comprehensive income of P18.0 billion, achieving a return on assets of 1.44 percent and a return on equity of 13.75 percent. Our cost-to-income ratio closed the year at 53.70 percent. We are also the only major Philippine bank that pays dividends on a regular basis. For 2014, we received Bangko Sentral approval to pay P7.08 billion in total dividends, an annual payout ratio of 39.2 percent. Our ability to consistently return capital to shareholders, while adhering to regulatory requirements on risk and capitalization, speaks to the strength of our culture of fiduciary prudence.
Our clients entrusted us with record business volumes in 2014. Total assets, loans, and deposits ended the year at all-time highs of P1.4 trillion, P800 billion, and P1.2 trillion, respectively. Loans and deposits grew 27 percent and 19 percent, respectively. Assets managed by our trust and investment teams grew 7.0 percent, ending the year at P619 billion. In our capital markets business, BPI originated and distributed record levels of equities and bonds. As reported by Bloomberg, we ranked No. 1 in equities for the first time, managing more than P25 billion in offerings; in bonds, we placed third, managing more than P41 billion in volume.
The quality of our balance sheet remains strong and our credit ratings are equal to that of the Philippine government, as published by both Moody's and Fitch Ratings. Our non-performing loans increased by far less than the growth of our loan book. As a result, our ratio of NPLs to loans fell to 1.52 percent (90-day). Despite this, we continue to build our loan loss reserves. At the end of last year, our reserve-to-NPL ratio reached 109.3 percent, a new high for BPI. Furthermore, this ratio assigns no value to collateral which, we believe, has substantial intrinsic value. We continue to see opportunities to grow our core loan business while maintaining our strong credit quality, especially as the Philippine economy continues to expand.
We thank you for supporting our highly successful rights issue, which concluded in February 2014. More than 99 percent of our stockholders subscribed to this issue, which raised P25 billion, the largest financial transaction in our company's history. This, combined with our significant earnings power, translated to some of the strongest capital ratios—and most straightforward capital structures—among Philippine banks. Our ratios for CAR and CET1 ended 2014 at 14.8 percent and 14.0 percent, respectively.
Growth and Leadership
We are very excited to reflect on where BPI stands today. In a volatile global economic environment that has increasingly seen countries decouple in economic terms, it has been comforting to see the Philippines enjoy a strong trajectory in domestic demand, driven by private spending and positive business and consumer sentiment. Furthermore, inflation remains benign and comfortably within the Bangko Sentral's target range. As it grows, our economy is also becoming increasingly inclusive. At BPI, we have grown our customer base to 7 million; and if we include our microfinance finance efforts at BPI Globe BanKO, it expands to 8 million. We seek to contribute to our national development agenda of inclusive growth as we engage a larger segment of our potential customer base.
We believe that BPI has the products and services needed to take full advantage of the growth in the Philippine economy. We are diversified and have scale across a broad range of deposit, payment, credit, capital markets, bancassurance, and asset management services. We have sophisticated, well developed channels that connect us to our clients. In 2014, we reinforced our leasing business by concluding a strategic partnership with Century Tokyo Leasing one of Japan's most successful asset finance companies. Century Tokyo offers BPI an opportunity to broaden its product offerings through new financial technologies, as well as unique connectivity to Japanese equipment manufacturers. We also announced a partnership with Global Payments, a NYSE-listed company that manages one of the world's largest merchant acquiring networks. By combining our point-of-sales terminals with theirs, our service offerings for BPI card customers will expand significantly.
In December 2014, we took steps to further sharpen the focus of our organization. To complement our legacy product teams, we added new teams charged with the sole purpose of strengthening our dialogue with clients at even deeper levels. This initiative is the essence of One BPI. If we are to continue multiplying the products used by each customer, we must first understand, at a deeper level, their financial objectives. And as our customers' definition of financial success evolves over time, our client and product bankers must likewise adjust and be ready to address these needs. The ability to "cross-sell" products is a common objective among banks. Many fail at this task. To do it well requires a talented, dedicated management team that communicates effectively and works together to do many things right. At BPI, we have already experienced some success at cross-selling, but we want to do much more.
BPI is in the business of building trust. Good governance and compliance are the very bedrock of trust. The year 2014 saw the onset of Basel III capital standards in Philippine banking, and a variety of Bangko Sentral initiatives to stem the risk of imbalances in property prices, promote sound credit practices, and enhance protection for consumers. We have taken a proactive stance in engaging our Bangko Sentral and contributing to policies that improve our banking system and build confidence with our public. Consistent with this stance, we have increased the resources devoted to our Compliance, Risk Management and Internal Audit functions. We believe that these functions at BPI have always set the standard to which many in our industry aspire. The continued protection of the reputation and financial well-being of BPI, its clients, and its shareholders remains one of our paramount objectives.
The BPI Family, Our Future
We are both very proud of BPI's accomplishments in 2014, and remain excited by what we see in our collective future. Our firm has embarked on an exciting new chapter in its 163-year history, "Making the Best Happen" for clients in ways we have not done before. Our successes are the result of the hard work, commitment, and deep sense of belonging that is the hallmark of our 14,542 unibankers. We are grateful to our whole team at BPI, both at home and abroad, for their commitment to our goals. We remain grateful, also, to our diverse and experienced board of directors. Their individual and collective wisdom has provided valuable guidance and their regular engagement across a number of committees has kept our governance strong. Finally, we remain grateful to all our stockholders for their engagement and trust as we continue to build for the future.
|Jaime Augusto Zobel de Ayala
||Cezar P. Consing
||President & Chief Executive Officer