Assessing BPI's Profitability Amidst Diverging Performance in Global Banking Sector

The global banking sector in 2025 is witnessing a stark divergence in performance trajectories. While Bank of the Philippine Islands (BPI) reported a 7.8% year-on-year increase in net profit to PHP 33.0 billion for H1 2025, its European counterparts—BNP Paribas Bank Polska and CaixaBank—posted robust gains of 26% and 10.3%, respectively. This divergence raises critical questions: Why does BPI's growth lag behind its peers? What structural or strategic factors explain the gap in risk provisions, expense management, and interest income trends? And how does BPI's long-term positioning stack up against global benchmarks?

Interest Income Trends: A Tale of Two Margins

BPI's 14% year-on-year revenue growth was driven by a 16.2% surge in net interest income (NII) to PHP 71.2 billion, supported by an 8.3% rise in earning assets and a 32-basis-point NIM expansion to 4.58%. This outperformed CaixaBank's 5.2% NII decline and BNP Paribas' 6.6% NII growth. However, BPI's NIM remains vulnerable to the Philippines' relatively low-interest-rate environment compared to the Eurozone and Poland.

CaixaBank, despite lower NIM, offset this with 46.2% growth in mortgage lending and 25.5% corporate loan expansion, while BNP Paribas leveraged a 12-basis-point NIM improvement in Poland. BPI's focus on non-institutional loans (e.g., SMEs, retail) offers higher growth potential but exposes it to credit risk volatility.

Expense Management: Efficiency vs. Investment

BPI's 46.2% cost-to-income ratio (down 96 basis points YoY) reflects disciplined expense control, even as operating costs rose 11.7% to PHP 42.7 billion. This contrasted sharply with CaixaBank's 38.6% cost-to-income ratio, the lowest among the three, driven by €3.18 billion in administrative expenses and a 5% operating income rise. BNP Paribas, meanwhile, improved its ratio to 46.1% despite a 6% YoY expense increase, citing automation and AI-driven cost savings.

BPI's investment in digital infrastructure—such as its BPI VYBE e-wallet and 1 million new digital customers in 2025—signals a long-term efficiency play. However, its higher expense base relative to peers suggests room for further optimization in technology and scale.

Risk Provisions: Prudence vs. Aggressiveness

BPI's PHP 7.3 billion in provisions (up 141.7% YoY) and 2.25% NPL ratio, with 123.8% coverage, reflect a proactive stance on credit risk. This contrasts with CaixaBank's 0.24% cost of risk and 70% NPL coverage, and BNP Paribas' 33 basis points in provisions (down from 40). While BPI's provisions are elevated, they align with its aggressive loan growth (14.1% YoY in gross loans) and exposure to higher-risk segments.

The key question: Is BPI's risk buffer excessive, or a necessary hedge against macroeconomic volatility in the Philippines? The 90.9% loan-to-deposit ratio and 62.4% CASA ratio suggest liquidity resilience, but higher provisions could weigh on profitability in the medium term.

Strategic Positioning for Recovery and Shareholder Value

BPI's 14.5% CET1 ratio and PHP 3.4 trillion asset base position it as a capital fortress, but its long-term value hinges on three factors:
1. Digital Transformation: The BPI VYBE e-wallet and 90.9% loan-to-deposit ratio indicate strong digital adoption, but scalability in Southeast Asia's fragmented market remains untested.
2. Loan Mix Optimization: Shifting toward higher-yielding non-institutional loans is a double-edged sword; while it drives revenue, it requires stringent credit underwriting to avoid NPL spikes.
3. ESG Alignment: The PHP 40 billion sustainability bond and renewable energy partnerships align with global trends but must translate into measurable ESG metrics to attract ESG-focused investors.

Investment Implications

BPI's H1 2025 results suggest a growth-at-a-reasonable-price narrative. Its 7.8% net profit growth, while lower than European peers, is underpinned by a 9.3% asset growth and 14.5% CET1 ratio, which provide a margin of safety. However, investors should monitor:
- NPL trends: If the 2.25% ratio rises above 3% amid economic slowdowns, provisions could erode margins.
- Digital ROI: Can BPI replicate the 90.9% loan-to-deposit ratio in new markets without compromising asset quality?
- Regulatory Risks: The Philippines' capital adequacy requirements and interest rate cycles could impact margin expansion.

For now, BPI appears undervalued relative to its global peers, with a forward P/E ratio of 10.3x (vs. CaixaBank's 8.3x and BNP Paribas' 9.1x). Its strategic focus on digital banking and ESG, combined with a robust capital base, makes it a compelling long-term play—provided it can balance risk-taking with prudence.

Conclusion

While BPI's profitability growth may trail its European counterparts, its strategic agility and capital strength position it as a resilient player in Southeast Asia's dynamic banking landscape. Investors should adopt a wait-and-watch approach, prioritizing BPI's digital scalability and credit risk management over short-term volatility. In a sector where global divergences are the norm, BPI's blend of organic growth and prudence could prove rewarding in the long term.