Bank of the Philippine Islands (BPI), the lending arm of the Ayala Group and one of the Philippines' largest banks by assets, expects its nonperforming loan (NPL) ratio to remain flat for the rest of the year, even as inflationary pressures continue to weigh on consumers' ability to service debt, according to the bank's top official.

"I don't think we'll see deterioration across the portfolio. What we do see is some of our consumer lines are deteriorating, some are not. But clearly, times are a little tougher. So, we're also tightening credit standards and we're beefing up collection," BPI President and Chief Executive Officer Jose Teodoro K. Limcaoco told reporters on the sidelines of a central bank event on Wednesday.

BPI's NPL ratio held flat at 2.42% as of end-June, remaining below the 3% level that Philippine banks broadly reported in the aftermath of pandemic-era relief measures. The lender also projects low-teens loan growth for the full year, Mr. Limcaoco said.

He noted that revenues have remained strong, even as the bank has increased loan-loss provisioning in response to a weakening macroeconomic environment.

"It depends on where the economy goes. The difference from last year and this year is our revenues are strong, but our provisioning is elevated because economic conditions are worsening," Mr. Limcaoco said.

"When economic conditions worsen, your expected credit loss model requires you to put more provisions. Even though NPL isn't rising, but because economic conditions are less positive, you have to put more. That's just what the model says. And so when economic conditions come back, you'll be able to reduce your provisions."

Under the International Financial Reporting Standard 9 (IFRS 9) framework adopted by Philippine banks, lenders must book forward-looking expected credit losses based on macroeconomic indicators, meaning provisioning can rise even before loans actually default.

The bank allocated P13.3 billion in provisions during the first half, representing an 84% surge from the same period last year. Its NPL coverage ratio stood at 92.98%.

Mr. Limcaoco added that BPI's economic outlook and provisioning strategy will hinge on economic growth, inflation expectations, and the central bank's interest rate trajectory.

"A lot remains to be seen whether, let's say, infrastructure spending picks up, whether inflation expectations are handled well, or whether the BSP (Bangko Sentral ng Pilipinas) raises rates to combat inflation," he said.

BPI anticipates at least one more rate hike this year, either at the Monetary Board's August or October meeting. However, Mr. Limcaoco cautioned that a jumbo hike could jeopardize economic growth.

"My guess is they'll probably hike rates either in August or the one after. I don't see them hiking rates 50 basis points (bps) in one blow. I think growth is a concern. But the governor has always been clear that the concern and the role of the BSP is inflation. So, I don't see a reason to hike 50 bps," he said.

BSP Governor Eli M. Remolona, Jr. said on Tuesday that the central bank could consider a larger 50-bp move amid emerging threats to inflation, though he noted the probability of such a move remains small.

The Monetary Board last month raised benchmark borrowing costs by 25 bps — its second consecutive hike this year — bringing the target reverse repurchase rate to 4.75%.

BPI's net income edged down 0.4% in the first half to P32.8 billion, as rising expenses and higher loan-loss provisioning offset robust revenues from its core businesses.

The bank's shares gained P1.40, or 1.37%, to close at P103.40 each on Wednesday. — Aaron Michael C. Sy