Bank of the Philippine Islands
Bank of the Philippine Islands
Incorporated: 1851 El Banco Español Filipino de Isabel 2
Net Earnings: P 5.17 billion ($938 million)(2002)
Stock Exchanges: Philippines
Ticker Symbol: BPI
NAIC: 522110 Commercial Banking
Bank of the Philippine Islands (BPI) is that country’s second-largest bank, trailing only Metropolitan Bank & Trust. It is also the Philippines’ oldest bank and one of the oldest of all Asian banks. BPI offers a full range of commercial and retail financial services, including corporate finance services, asset management, and brokerage and other financial consulting services. BPI’s retail network includes more than 700 branches throughout the Philippines, as well as branches in New York, Hong Kong, and Tokyo. The bank also operates a network of more than 1,200 automated teller machines and more than 8,500 retailer-based point-of-sale machines. In 1999, BPI pioneered online banking in the Philippines with the launch of online bank BPI Direct in 1999. In addition to its banking products and services, BPI has also developed a strong non-life insurance operation, chiefly under subsidiary BPI/MS Insurance Corporation. Listed on the Philippines Stock Exchange, BPI has long been majority controlled by Philippines conglomerate Ayala Corporation.
Founding Asian Banking History in the 19th Century
The increasing trade between Spain and the Philippine Islands created a need for a banking facility in the Spanish colony. A first attempt to establish a colonial bank came in 1828, when King Ferdinand VII called for the creation of a public bank in the Philippines. Yet the actual formation of the bank did not occur until the middle of the century, under the auspices of then colonial governor Antonio de Urbiztondo y Eguia, who took up his post in 1850.
Urbiztondo established the bank the following year in the Royal Custom House in the fortress town of Intramuros. The bank was named El Banco Español Filipino de Isabel 2 in honor of the reigning queen of Spain. Joining the bank’s policy board was Antonio de Ayala. The Ayala family and the later Ayala Corporation were to remain intimately related with the bank and with the Philippines’ industrial development.
As the first and only public bank in the Philippines—and perhaps the first public bank in all of Southeast Asia—El Banco Español Filipino de Isabel 2 was granted the authority to issue the first paper money in the Philippines. That operation started in 1852, when the bank issued its first pesos fuertes, or’strong pesos.’
El Banco Español Filipino de Isabel 2 and its successors played a prominent role in financing the development of the Philippines. This included financing for the country’s first railroad, and, later, its telephone network, its electric utilities, and the country’s first steamship service.
In the meantime, the bank changed its name after Isabel II was dethroned in 1869, becoming more simply El Banco Español Filipino. Nonetheless, the bank remained under the control of Spain. The bank remained in its Intramuros site until nearly the end of the century. However, the shift in Manila’s industrial and commercial activity led the bank to move its offices in 1892 to the Binondo district across the Pasig River.
The development of the sugar industry in the Philippines had opened up new potential banking markets, and the bank petitioned Spain for permission to expand its operations. In 1897, Banco Español Filipino opened its first branch office, Iloilo. The outbreak of the Spanish-American War the following year, however, changing the political situation in the Philippines.
The Philippines became a U.S. possession following the Treaty of Paris of 1898. No longer under Spanish domination, Banco Español Filipino transformed itself into a purely Filipino institution. While the change in the company’s name—authorized in 1907—came only in 1912, it nevertheless adopted the name of Bank of the Philippine Islands (BPI). The Spanish influence remained strong, however, and the bank became popularly known as Banco de las Islas Filipinas. Also in 1912, the bank opened its second branch office, in Zamboanga.
BPI continued its money-issuing function during this period, although it was no longer the exclusive issuer of Philippine pesos. With the creation of the Central Bank of the Philippines in 1949, however, BPI lost its money-issuing privileges altogether. The now-independent country began instituting a variety of banking reforms designed to stimulate the growth of the banking system and the creation of new banks, particularly in rural areas. As part of that process, BPI was converted to a private bank. In 1969, the bank’s relationship with the Ay ala family and businesses strengthened after Ayala Corporation took a majority share in BPI. At that point, BPI became the center of Ay ala’s banking and, later, insurance interests.
Under Ayala, BPI began an expansion campaign lasting into the next century that firmly positioned it among the Philippines’ top banks. Much of BPI’s growth came through a stream of acquisitions, starting in 1974 with its purchase of the Peoples Bank and Trust Company. That acquisition significantly helped to build BPI’s branch network.
Expansion and Diversification in the 1980s
In 1982, BPI began preparing for the deregulation of the Philippines’ banking industry, which enabled it to transform itself into an expanded commercial bank. As part of that effort, BPI acquired Commercial Bank and Trust Company, which specialized in the middle market, in 1981. The growing bank then moved to enter the investment banking field with the purchase of Ayala Investment and Development Corporation in 1982. BPI’s relationship with Ayala also enabled it to add an international component that year when it took over Ayala International Finance, based in Hong Kong. BPI made two more significant purchases in 1982 when it acquired Philsec, boosting its new investment banking wing, and Makati Leasing and Financing. The latter purchase helped strengthen its own leasing arm, which was launched in 1980 and made BPI the first Philippine bank to offer leasing facilities.
BPI by then had expanded its operations into the Philippines rural areas after acquiring People’s Development Bank, which also held a strong, agribusiness-based loan portfolio, in 1984. That purchase enabled BPI to meet new government requirements stipulating that agribusiness loans make up at least 20 percent of a bank’s loan portfolio. The People’s Development Bank acquisition formed the basis of BPI’s new subsidiary, BPI Agricultural Bank.
BPI continued its acquisition burst into the mid-1980s. In 1985, the company added Family Bank, at the time a major mortgage and savings bank in the Philippines. Renamed BPI Family Bank, the new subsidiary grew into one of the country’s leading consumer lending banks. Also in 1985, BPI stepped up its international component with the purchase of Asian International Bank, based in New York. That office was later converted into a full BPI branch.
“Bancassurance” Leader in the New Century
Alongside its acquisition campaign, BPI displayed its penchant for playing the pioneer in various banking areas during the 1980s and early 1990s. In 1981, the bank became the first in the country to offer access via Automated Teller Machines (ATM). Two years later, BPI extended its ATM network to include its Express Teller system, the first in the country to provide 24-hour access to banking services. Then, in 1987, the bank introduced the Philippines first debit-card system.
BPI’s next technological innovation came in 1991 when it introduced its Express Banking Centers. Typically located in shopping malls, BPI’s Express Banking Centers operated as mini-banks providing a more limited range of services than full-service banks. Nonetheless, customers were able to open new accounts as well as apply for credit cards and home and car loans.
If BPI had taken a break from external growth, its competitors had not, and by the middle of the 1990s the company had turned over its first-place spot to fast-growing Metropolitan & Trust Corporation. BPI was then forced to content itself with a position in the top three, alongside state-owned Philippine Nation Bank. Yet the opening of the Philippines banking sector to foreign competition for the first time in the mid-1990s set off a new wave of consolidation among the country’s banking sector, which at the time counted 38 commercial banks and some 800 rural credit houses.
BPI once again began to grow through acquisition, starting in 1995 with the purchase of First Cavite Savings. The following year, the company struck again, adding City Trust Banking Corporation. That bank, a specialist consumer services bank, had been ranked number 16 in terms of assets among Philippine banks. The acquisition of CityTrust boosted BPI’s branch network to more than 400.
BPI remained relatively stable despite the crisis sweeping through the Asian financial community. By the end of the decade, the bank had completed integrating its newly expanded operations and had begun to make plans for a new growth spurt. In 1998, the bank launched a 24-hour call center providing a broad range of banking services over the telephone.
Through the years, BPI strove to deliver the highest standards of convenience banking through the ingenuity of technology and creative management. As the recognized “‘most technologically advanced bank”, BPI introduced the first successful automated teller machine (ATM) service in the Philippines. Among BPI’s other firsts are: the issuance of the first debit card, the introduction of cashless shopping with the Express Teller Card, the establishment of banking kiosks, the Express Banking Centers, the launching of telephone banking with the Express Phone, and the use of a Call Center. BPI has distinguished itself by catering to the ever-evolving needs and lifestyles of the public.
The following year, BPI began talks for a three-way merger with two other prominent Filipino banks, FarEast Bank and Trust Company and Union Bank. After Union Bank pulled out of the proposed merger, BPI and FarEast went it alone and in November 1999 FarEast agreed to be acquired by BPI for $1.2 billion. The merged operation now claimed—if only temporarily—the top spot in the Philippines’ banking sector. The Far East merger also gave the company an insurance subsidiary, FEB Mitsui Marine.
BPI entered new territory in 2000 when it became the first Filipino bank to launch its own online bank, BPI Direct. In that year, too, the bank showed its pioneering mettle again when it acquired FGU Insurance Corporation, Universal Reinsurance Corporation, Ayala Life Assurance, Ayala Health Care and Ayala Plans. These acquisitions gave BPI the right to label itself as the Philippines’ first “bancassurance” company. In 2001, FGU merged with FEB Mitsui Marine, creating BPI/MS Insurance Corporation.
As consumer lending slowed amid the difficult economic climate at the beginning of the 2000s, BPI turned toward increasing its corporate lending operations, particularly to the small and medium enterprise (SME) market. Insurance continued to play a central role in BPI’s growth strategy, particularly as the bank announced its intention to pursue more insurance acquisitions at the end of 2002. As part of its focus on insurance products, BPI spun off its re-insurance operations into a merger with Malayan Reinsurance Corporation, forming Universal Malayan Reinsurance Corporation in August 2003.
By then, BPI had completed another significant purchase when it bought up DBS Bank Philippines, which enabled the company’s thrift banking component to claim the leadership spot in the Philippines. BPI’s banking arm now boasted more than 1,200 branch offices in operation. The bank was also one of the most financially sound of all Philippine banks, posting steady increases in its net earnings despite the Asian economic crisis that occurred in the early 2000s. After more than 150 years in existence, BPI remained a top player in the Philippines banking market.
Ayala Financial and Insurance Services Inc.; Ayala Health Care Inc.; Ayala Life Assurance Inc.; Ayala Plans, Inc.; BPI Capital Corporation; BPI Computer Systems Corporation; BPI Direct Savings Bank; BPI Express Remittance Corporation; BPI Family Savings Bank; BPI Forex Corporation; BPI Foundation, Inc.; BPI International Finance, Ltd.; BPI Investment Management, Inc.; BPI Leasing Corporation; BPI Operations Management Corporation; BPI Securities Corporation; BPI/MS Insurance Corporation; Santiago Land Development Corporation; Universal Reinsurance Corporation.
Citibank; Metropolitan Bank and Trust Co.; Equitable-PCI Bank; Land Bank of the Philippines; Philippine National Bank; Rizal Commercial Banking Corporation; Development Bank of the Philippines; Allied Banking Corporation; United Coconut Planters Bank; China Banking Corporation; Union Bank of the Philippines.
- King Ferdinand VII of Spain issues a decree authorizing the formation of Bank in the Philippines.
- El Banco Español Filipino de Isabel 2 is established.
- The bank becomes a Filipino institution after United States takes over the Philippines from Spain.
- The bank changes its name to Bank of the Philippine Islands (BPI).
- Ayala Corporation acquires control of BPI.
- BPI acquires Peoples Bank and Trust Company.
- The bank begins leasing operations.
- Commercial Bank and Trust Company is acquired, and the first ATMs are introduced.
- The company converts to expanded commercial bank status.
- First Cavite Savings is acquired.
- Far East Bank and Trust Company is acquired.
- BPI Direct internet banking service is launched, and Ayala insurance companies are acquired.
- DBS Bank Philippines is acquired.
- The company spins off re-insurance operations into Universal Malayan Reinsurance Corporation.
“Bank of the Philippine Islands to Offer E-banking,” AsiaPulse News, October 8, 2002.
Gälica, Dymphna R., “Philippines and Southeast Asia’s First Commercial Bank,” BusinessWorld, December 9, 1999.
Colayco, Maria Teresa, A Tradition Of Leadership: Bank Of The Philippine Islands, Manila: Bank Of The Phillippine Islands, 1984.
Juna, Catherine, “BPI Eyeing SME Market,” BusinessWorld, September 26, 2002.
“152nd Anniversary of the Bank of the Philippine Islands,” Manila Bulletin, July 31, 2003.
Yap, Cecille E., “BPI Open to Acquisitions,” BusinessWorld, March 13, 2002.