Oldest Southeast Asia Bank Rides Wave of Green Finance and Tech

Bank of the Philippine Islands, Southeast Asia’s oldest lender, is adapting to a global trend for green finance and digitalization, according to its chief executive officer.

The 170-year-old bank owned by conglomerate Ayala Corp. is betting on a leap in renewable energy use as the technology becomes affordable and the power sector shifts to more environmentally friendly plants, TG Limcaoco said in an interview on June 18. Among Philippine lenders, BPI has the highest exposure to coal, said a civil society group called Withdraw from Coal.

Oldest Southeast Asia Bank Rides Wave of Green Finance and Tech

“Investors and lenders have woken up to the fact that demands of society today really point to renewable energy, and therefore less and less people are willing to finance or insure coal plants,” Limcaoco said. “From a banker’s point of view, that is a credit risk. It’s all part of the world coming around the same belief.”

BPI, which is the Philippines’ third-largest listed lender by assets, aims to halve outstanding coal loans in five years and cut them to zero by 2032, Limcaoco said. Around 2025, the CEO thinks renewable energy could provide baseload power supply to the grid just like coal, boosting its appeal.

Massive Coal Push in Philippines Makes Green Finance Harder (1)

The bank will begin to focus on borrowers and their “sustainable behavior” such that developers of green buildings and buyers of clean energy may eventually enjoy lower interest rates as an incentive, said the former Ayala Corp. chief financial officer, who took the helm at BPI in April.

Philippine central bank Governor Benjamin Diokno said in a June 19 statement that nearly $3 billion worth of green, social and sustainability bonds have been issued by Philippine banks since 2017 and he expects more lenders to take that path.

BPI, which sold green notes in 2019, said that with the pandemic curtailing loan demand for now, “there’s so much liquidity in the system” and the bank can finance renewable projects without having to sell more bonds.

There are sufficient funds for acquisition, said Limcaoco, declining to say at what stage BPI’s bid to buy Citigroup Inc.’s retail business in the Philippines is. Investment in technology will be as much as 10% of revenue starting this year, from a typical range of 7% to 9% annually, he said. That will enable the bank to strengthen digital platforms for retail and mid-sized customers and to guard against fraud, the CEO said.

The country’s pandemic lockdown, one of the longest and strictest in the world, has prompted a review of the bank’s expansion strategy. With foot traffic down by 70% at its branches, BPI plans to reduce brick-and-mortar outlets by 15% to 20% in the next 18 months, Limcaoco said. About 90% of the bank’s transactions are now digital, up from 60% pre-pandemic.

Pandemic Trends

“We should do less transactions at the branches and more selling,” the CEO said. With a workforce of about 19,000, BPI will retrain most of its branch staff for product sales and advisory so they’re equipped to handle an expected surge in demand once the economy recovers, Limcaoco said.

As economic activity remains tepid for now, growth in BPI’s loan portfolio will probably range from flat to as much as 4% this year, with companies withholding expansion and people still hesitant to go out and spend, Limcaoco said, adding that the phase of vaccination will dictate the speed of Philippine recovery from five quarters of contraction.

Bad loans may hit 4% under BPI’s worst-case scenario, and that doesn’t require “aggressive” loss cover after 28 billion pesos ($578 million) in provisioning last year, he said.

©2021 Bloomberg L.P.

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