Bank of the Philippine Islands: Pioneering Innovation and Growth in the Digital Frontier

Guest: Jose Teodoro “TG” Limcaoco, President and Chief Executive Officer, Bank of the Philippine Islands (BPI)

In this episode, we are joined by Jose Teodoro “TG” Limcaoco, President and Chief Executive Officer, Bank of the Philippine Islands (BPI). With his wealth of knowledge and experience, we delve into topics such as defining innovation, navigating the ever-evolving demographics of the Philippines, and quantifying innovation to measure what truly matters. Recognising the significance of building an exceptional corporate culture, TG shares his expertise on creating an environment that attracts and retains top talent. As a business leader with a tech background, TG articulates his enthusiasm for the factors propelling growth within the dynamic and promising landscape of the Philippines. 

Founded in 1851, BPI stands as Southeast Asia's oldest bank and proudly holds a listing on the PSE with a market capitalization of USD 8.71 billion (485.67 billion peso) as of June 2023.

Transcript

Voice Over: 0:02

The AIBP ASEAN B2B growth podcast is a series of fireside chats with business leaders in Southeast Asia focused on growth in the region. Topics discussed include business strategy, sales and marketing, enterprise technology and innovation.

Irza - AIBP: 0:28

Hello everyone, and welcome to the ASEAN B2B growth podcast where we sit down with individuals responsible for growing businesses here in Southeast Asia. For those of you who are signing in via Spotify Video or YouTube, and you can look at the screen, you can see that today we have a very special guest with us, representing obviously the banking industry, representing actually what is Southeast Asia's oldest bank. As you can see again on the screen, BPI, was founded in 1851. So it's 171 years old, going on to 172. Our guest today, obviously, is not as old as that, but I will head over to Jose Teodoro Limcaoco, who otherwise is known more affectionately as TG. TG, thank you very much for joining us today. And before we learn about obviously, your storied institution, let's learn a little bit about yourself. Tell us a bit about yourself and where you grew up, how you ended up being where you are today.

TG - BPI: 1:28

Thanks so much Irza, it's a pleasure to be here. People call me TG Limcaoco, TG for short. I grew up in the Philippines, but was fortunate enough to go to school in the United States. I did my undergraduate degree in mathematical sciences at Stanford University, and I did my postgraduate MBA at the Wharton School at the University of Pennsylvania. But all that is meaningless because as you grow older, what's really important is your experience in life. And I basically am today the President and CEO of Bank of the Philippine Islands. As you mentioned Irza, it is the oldest bank in Southeast Asia, we were founded in 1851. My journey to get to where I am today really revolved around leaving BPI three times. I first joined BPI in 1989, left BPI to join JP Morgan in Singapore where I was fortunate enough to join a first team that they set up to trade ASEAN currencies. I ran the derivatives desk there. Right after Wharton, I joined JP Morgan in New York, came back to Manila worked for BPI, then joined JP Morgan in Singapore. Left JP Morgan in Singapore to come back to BPI again in '95, left BPI in '97, to run the Philippine office of Barclays Bank, basically their investment bank called BZW back then. I was fortunate enough to join them two months before the Asian financial crisis, at which point I lost my job. And, at that time, then in 1998 joined Ayala Corporation, which is the majority shareholder of BPI. I joined the Ayala as one of the finance team, eventually rising to run their treasury, at which point and I did some tech work for them. My passion is tech. During the dot-com boom, I developed a lot of platforms for Ayala. I moved out of finance and into the tech world for Ayala. dot-com boom busted, and in 2007, I moved from Ayala back into BPI to run BPI's investment bank and eventually their consumer bank in 2010. In 2015, I was reassigned from BPI back to Ayala as their CFO, as well as their Chief Sustainability Officer, the Chief Risk Officer position I held until 2021 when I was appointed as the President and CEO of BPI. So this is my fourth tour in BPI, but in many ways, it was coming home to BPI, where many of the people I work with today were people I grew up professionally with, and it's been an honor to be leading this institution.

Irza - AIBP: 4:12

It's been full circle, right. Like you mentioned, you've left BPI quite a few times, you've shifted between technology jobs as well as banking as well. You actually started as a programmer, if I'm not wrong, in a semiconductor company.

TG - BPI: 4:24

That's correct. Before going to business school I worked in Silicon Valley. In the valley, I was a programmer for a semiconductor firm. Very interestingly, when I decided to leave the technology field, the chairman of the company called me into his office and said why are you leaving the future? And I said, because I wanted to be a banker.

Irza - AIBP: 4:44

He must not have looked kindly upon that reply, right?

TG - BPI: 4:48

Yes, he was a very, very wise man. But you know, you need to follow your passion.

Irza - AIBP: 4:55

I think a little bit older than BPI itself right? 17 years older if I'm not wrong. Tell us a little bit about your history, BPI's history as well as the conglomerate's.

TG - BPI: 5:15

That's correct. Ayala Corporation is probably the oldest conglomerate in the Philippines, it was founded in 1834. One of its major holdings today is the Bank of the Philippine Islands, which was founded in 1851. As the Central Bank of the Philippines, by the Queen of Spain, gave the mandate, eventually that passed on to the formal Central Bank of the Philippines. But we pride ourselves and BPI for being a bank that has a storied history, history and reputation that's really core to our success. It's a bank that has withstood a lot of, you know, problems, I guess, the Second World War where a lot of the wealth and the treasure of the country were kept in our vaults during the war. It's a bank that survived, I guess, economic crisis in the Philippines, the Asian financial crisis. But what we pride ourselves also is a bank that we have changed a lot. We're quite innovative, we'd like to think of ourselves as the first technology bank in the country, we introduced many of the modern technology features, way back into the 70s. We also were the first bank to do internet banking in early 2000. And in the last maybe five years, six years, we have begun a real journey of transformation, of digital transformation, where we began I guess, in 2017, ripping out our core, developing it, modernizing it, and first digitizing our existing processes and customers. And now we're on this journey of trying to broaden our customer base, trying to tap a wider market using digital platforms.

Irza - AIBP: 6:57

Perfect TG, you know, one interesting point, I think, we noticed when we were looking through, and we've been looking through the banking sector in Southeast Asia for quite a while, there are a lot of obviously challenger and digital banks being set up in this region. And obviously, most of the guys founding these challenger digital banks are product technology, guys. But then if you look at the chart just now, most of the CEOs of the largest banks, the leaders of the largest banks in Southeast Asia, they don't historically or traditionally come from a technology background. So as one of the few, you know, bank CEOs in the region, who actually comes from a technology background, and I know you said that education is less important once you've been through the school of hard knocks of life, how do you think that that route actually shaped your view of what innovation is, or digital transformation is, within an institution such as BPI?

TG - BPI: 7:47

I think people who come from a technology background have a very clear vision of how they want technology to help and to proceed in the development of a business. We understand the difficulties that technology brings in terms of rolling out projects and platforms. We can sympathize with people who run the technology groups of any institution. I believe that institutions really, you have this wonderful tension between business people and technology people. And it's a tension that someone's got to ride carefully between. And I think people who have a strong technology background, are able to lead that journey and make those trade offs which eventually those trade offs do happen. And from one of the things that we've really managed here at the Bank is, we had, we started a lot of our products and a lot of our processes from the technology point of view, where the back side of the bank led that. And today, we're beginning to move that into the business side where the business is beginning to drive the technology and using the technology people as key resource people to really deliver technology that is meaningful to the customers, as a technology person from before, you fall in love with technology. And sometimes you forget that in the end technology's got to help the customer, rather than them pleased that the artistic work of programmers and technology people. And so that's a balance that needs to be stuck.

Irza - AIBP: 9:25

Yeah, as you've mentioned, BPI has been quite innovative and a leader when it comes to digital transformation. I think you're one of the leaders in terms of digital customer penetration in the Philippines as well, which has become quite a big battleground for digital banks as well. So to you personally, as well in the context of BPI, what does innovation mean to you and how do you incorporate something, as you mentioned, right, innovation is something that's new, willing to try new things, but within an organization that's 171 years old, within an industry that is seen to be typically quite traditional, how do you measure innovation within BPI itself?

TG - BPI: 10:04

I think innovation is gotta be driven by several things. The first thing that makes innovation successful or proves to one that innovation really has permeated the culture of an organization, is the fact that the people in the organization must think of innovation as a tool to satisfy customer needs. At the bank, we're really focused on making sure that customer obsession is key. And everything we do revolves around making sure that what we are doing makes the journey easier and more pleasant and more pleasurable for the customer. That's rule number one, right? So it's got to focus on the customer. Rule number two is to make sure that we do it fast enough in a timely manner. And I'd be the first to admit that in many cases, a legacy institution like BPI, that's where we've got to work hardest, we've got to make sure our processes allow us to make these changes and then put these ideas and bring them out and execute them quickly. And understand that many of these ideas may not work right away. But be prepared to change and pivot and modify and adapt as ideas don't work. We, an institution like BPI, which has grown over 172 years hasn't lasted that long, because people were reckless, their absolute controls in place, their checks and balances, especially for a bank, where trust is key, where failure is not an option. Massive failure is not an option. So we've got to make sure people feel comfortable that we can try, we can make small errors and change them quickly and admit to errors quickly. So I think in the end, that's a big cultural change, especially for an old institution, where we allow people to try new things, make them understand that some of these new things will not succeed as they think and make sure that they feel safe, that they can do it. But in the end, it's really about making sure that they think about the customer first, make sure that the ideas that they bring for the customer are put in quickly, incrementally and change as they don't work. To me that's innovation. In reality, it's just a whole complete mindset. And the culture, which allows trial and error.

Irza - AIBP: 12:12

Perfect. I think there's been a lot of differing views when it comes to innovation and what it means and obviously in Southeast Asia, where the average GDP per capita across all nations or something, somewhere in the range of 5000. In the Philippines is somewhere 3500, 4000, right? Innovation takes stage, center stage, very, very differently when it's compared to developed markets in the US or even in Europe. I think for our listeners, for international listeners, TG, maybe you can just give an overview of customers, you talk about customer obsession in the Philippines, as a banking institution, can you just quickly run through how the general macroeconomic or aggregate view of what customers in the Philippines are and how they might differ in more developed markets?

TG - BPI: 12:54

Yeah, the Philippines is unique, because obviously we are what's called a developing country, our per capita is probably about $3,000. And we're still in the low end relative to our neighbors in Southeast Asia. And yet, we have a population of over 100 million people and a population that is demographically what people call in the sweet spot right. We are in a situation now where we have more people of wage earning age between 21 and 65, than people over 65 and under 21. So we have the ability for a greater number of the population to support the people who don't work. So that's good demographically. We also have a significantly growing middle class, which has really helped the economy, our economy is growing in excess of 6%. This year, we think it's going to grow 6.4 to 7%. And that's something that's been consistent for the past couple of years. It's really a young population, a population that's consumer, the economy that's consumer driven, we have a fairly large, what I would call an export base based on knowledge. So we have a lot of overseas Filipinos who remit a lot of money in, but we also have a significant BPO base, which basically is knowledge workers in the Philippines being paid by overseas clients. So in a way, we're in a good spot, and what we need to do is bring more people into the financial industry, get more people to be financially included. And I think that's what we are working on as part of the whole system, particularly BPI. We are now transitioning away from our core markets, which used to be the higher end of the market. And we're trying to go across a broader spectrum of customers. And that means a lot of changes, building apps that can be loaded on cheaper phones, for example, looking at endorsers who appeal to a mass market, a more mass market, changing our whole marketing campaign so we attract a broader segment of the population. This is a complete change for us.

Irza - AIBP: 15:04

There must be quite difficult, right, TG, because when you look at the Philippines, you're right to mention that, you know, they are one of the youngest populations, but they pick up on technology so quickly. I think during COVID, Philippines accounted for something like 40 to 50% of this crypto game, Axie Infinity. Everybody was quitting their jobs to play the game full time. Obviously, that did not work out. So when you look at serving different segments of the population, and especially I think something like half of the population is still unbanked currently in the Philippines. How do you use innovation, and I know you're a big proponent of the NPS core metric, right, what actually do you watch for? What actually do you look at to ensure that your customer obsession is being met?

TG - BPI: 15:50

Well, for customer obsession, we're very focused on the NPS score, right. Across the bank, we've rolled out a program where people are actually aware of what our NPS scores are. We announce it regularly, we make sure people are aware of what drives NPS. And we make sure to people that we tell them that this is an independent score. And we make sure that they know what drives it in terms of their behavior. We also understand that if our ambitions are to be met, this goes beyond our current client base. The NPS score measures people who are your client base, our ambition is to be broader to broaden our client base by more than like four times over the next five years. And this means we need to attract a new segment of the population. And this means developing products that are attractive to them, in terms of technology, make sure they are able to access our services, perform the jobs that need to be done, either through technology, through our apps, or through agents, we have rolled out a new program within the bank called agency banking, where aside from our digital platforms which is just one channel, our branches, which is our traditional channel, we are also now rolling out what we call our agency channel, working with partners who will provide services as well as sales for our basic products with the broader market. So we are working with retail stores, with gas stations, with pharmacies, to be able to provide banking services at that level.

Irza - AIBP: 17:21

Great. And that brings me back to the point you raised. TG, you mentioned that internally, you are making sure everybody understands what the NPS score. So obviously this is something that you're working on from internally within the bank as well. And Philippines, I believe the average the median age in the Philippines is something like 23, 24 years old. So it's an extremely young population, a lot of people entering the workforce. As the leader of this organization, this storied organization, how do you balance you know, all this digital natives, Gen Z, millennials coming in? How do you address the need for leadership development, digital and innovation, upskilling? Because I think that's a big problem throughout Southeast Asia as well.

TG - BPI: 17:59

Yeah, the first problem is retention, right. So, the first problem is trying to get them to join you. And then once they're in, it's retention. Let's take those two things one at a time. Trying to get people to join, you need to make sure we leverage off the name. I think BPI is a very storied name, people look at us as one of the top places to work for, desired places to work for. We go to the campuses, we talk to them, we make it easy for our potential employees to apply with us. We either go to campus or we have job fairs internally on weekends, have them come in and really show them what working for BPI might be like, we also make sure that we are very clear to them that what our mission is, obviously today, the young people are looking for more than just a job that pays. They're looking for to work for an institution that's got a reputation. We're very clear about our mission and our vision, we're very clear about how we stand for working with the environment, with society and with governance. And we're very proud of this. So all that comes into trying to pull people into join the organization. And of course, we also pay market rates. And we're very clear that we do want to pay above market rates to get the best talent. Retention is another step in this whole journey of keeping employees engaged. We take an engagement score every two years and engagement survey to make sure that we see we feel the pulse of the people. Training is key, like this year, we're mandating that everyone everyone across the bank gets training on the use of data and what data analytics might mean to them in their jobs, all across the bank. Depending on your function, there's massive training that we do where we actually mandate training because we keep track of these modules you take. We use electronic platforms to provide the training and so people do it at their own free time. We are also have a lot of sponsorship on interest groups, right? Where people have like interests come in and work together. And that's funded by the bank. But it's also key for us is we have a very employee-driven volunteer program where people who work around, you know, common communities can get together and do work for the community, we call it our BAYAN program, which means a community or country, and the bank will sponsor and fund them. It's amazing how people are willing to get together on a weekend, and to do work for their community, if we just provide them the resources. So that's one of the things that I find very fulfilling about this bank where, you know, the people really want to help give back to the community, and we at the bank through our BPI foundation will fund that kind of work. And that makes it at least the stickiness and people staying in the jobs. And of course, you need to have leadership that leads by example, keeps open doors, and it's one of the things that I work with my team and their teams to make sure that leadership is by example, and we walk the talk. We have an annual leadership summit, where I bring 700 of our top leaders together, and we talk about what we're trying to do, we listen to the best and motivate them, and send out what kind of message we want to give to our people.

Irza - AIBP: 21:24

Fantastic. Thank you, TG. We will actually in the Philippines, I think two weeks ago, I was in the Philippines two weeks ago for our local advisory board meeting. And I think one thing that has come up quite often ever since COVID especially, was the realization that in the Philippines, people are extremely social beings, right? There's the need to, you mentioned, you know, they're more than happy to work over the weekend, they're more than happy to support each other, especially during the difficult times during COVID. And I think that's something that also translates into their adoption of digital. Because if your friend is playing Axie Infinity, and you aren't on it. Philippines was also one of the fastest growing regions for Facebook, you know, back in the days, six, seven years ago. So I think this is a trend that's been consistent throughout the last decade or so in the Philippines. Let's talk about growth a little bit. TG, you you mentioned, you know, you're looking to increase your customer base by four times, a multiple of four over the next few years. And you recently merged with Robinsons Bank, congratulations on that. And you quickly just talked through what that provides you, how that will actually support your growth over the next few years.

TG - BPI: 22:30

Yeah, we signed the deal where we merged with Robinsons Bank, that deal hopes to close by January 1 2024, because we still need regulatory approvals. But really the Robinsons Bank deal is a great transaction for both BPI and Robinsons Bank shareholders because it brings together two, I guess two ecosystems. Obviously BPI being you know, one of the three largest banks in the country, dominates in

Irza - AIBP: 22:56

And you know, now that you've done acquisition, many sectors. Robinsons Bank is a, it's a much smaller bank, where they're about 6% of our size, but it's because the owners is the Gokongwei family, which is a very reputable and very large conglomerate as well. The objective of merging with Robinsons Bank is to bring that whole ecosystem onto the BPI ecosystem, providing their suppliers, providing their customers with a breadth of services that BPI can have, that BPI can provide, as well as for BPI to be able to tap the business of these clients. I'll tell you, Irza, you know, when you look at the performance of Robinsons Bank over the last five years, it's phenomenal growth, it's excellent leadership on their side, they were growing in excess of 25% a year. This is a management team that is very focused, they've got a couple of unique products that we'd love to bring on to our portfolio. And just working with them over the last year proves to me that these two banks are two banks, really are very close in terms of thinking, the two majority owners are very close in terms of values. And therefore I think it'd be a seamless integration. I love the fact that the ecosystem of the JG Summit or the Gokongwei Family Group will now be our customers. We will provide them more services. But also the fact that this is an ecosystem that was very loyal to Robinsons Bank coming on board with us, is just phenomenal for for both sides. one last question before I actually ask you and your thoughts, actually this is a question around the thoughts. What do you think are the challenges you face both after the merger obviously, and BPI's outlook? We are in an extremely uncertain point in the world. I think over the last few months, you've seen quite a few big news coming out of developed markets in the US and in Europe around the banking space. We've seen quite a few consolidations as well, in this part of the world. What do you think are challenges that you anticipate going forward? And how can, coming back to the topic around innovation and technology, how can you actually use that as a tool, as you mentioned, to drive or to support that growth?

TG - BPI: 25:15

I think the challenges of banks going forward will be that given the events of the past couple of months, banks will be generally more scrutinized going forward, in terms of the way they do business, in terms of their balance sheet, in terms of concentration of risks, of deposits, there'll be a lot more scrutiny. Hopefully, this does not necessarily lead to more regulation in the Philippines. I think, since 1997, our central bank has been really at the fore of making sure that banks are healthy in the Philippines. And I think most people agree that if you look at the health of the banking sector, the Philippines has got one of the healthiest banking sectors around. The banks are very well capitalized, very well regulated and very compliant. And you have a you have a Bangko Sentral in the Philippines, that's actually very ahead of its time, if I may say so. So I'm not worried about the banking, the health of the banking sector in the Philippines, I do think a lot about increased scrutiny by investors, and rightly so given what's happened in the past couple of months, increased scrutiny by potential customers. But when you dig deep into the major banks in the Philippines, all across the commercial banking sector, I think you'll find that most banks, all banks are very healthy. The challenge then is to continue to grow, given the challenges of the global markets, more volatile markets, the challenges provided by fintechs are trying to disrupt and making sure that we continue to provide our customers still the services that they want. To this end, I really believe that technology is the solution. Technology allows us particularly BPI, which is our strategy, one, to be more inclusive, gather more customers. Technology allows us to derive more data, understand the behavior of our customers better. And third, technology allows us to deliver these services and these capabilities at a much lower cost. I'm an old school technology guy. So one of the things that I'm really driving at is trying to make sure that our technology continues to have that capacity at a fixed cost. And I know there's many schools of thought how you deliver technology. And it's something that we continue to look at whether software as a service, whether cloud based all these things are what people are using today. And I think it's worth, you know, there are many technologies that will come forward. And you just have to keep at the forefront to look at what's best. And what you can deliver at the most reasonable price for the share, I guess, for the shareholders or for the bottom line.

Irza - AIBP: 28:02

I think that's a great point, because I think we've quite a few corporates we've spoken to in Southeast Asia have seen their technology bill balloon over the last four or five years, especially during COVID. And now I think at this point in the economic cycle, I think they're looking at consolidating that and relooking what spend and what it gives them at the end of the day. Thank you very much, TG. Before I let you go, I have one more question for you. Looking forward, you know, outside of your banking sector, looking at the Philippines, looking within Southeast Asia, what actually are you most excited about when it comes to growth in the region as well as in Philippines?

TG - BPI: 28:38

I think Philippines being in Southeast Asia, we're in a very good spot. This is a place where the economy will continue to grow, where trade continues to be a good spot for all of us. I think as an association of countries, we haven't even fully utilized that inter regional trade, right, or inter regional travel. I think for the Philippines, we have a lot of things going for us. As I said, the demographics are in our favor. We need to work on foreign direct investment coming in. But that's really in a way, opening yourselves up and telling the world what's available in this country. And I think we are beginning to do that, again in a serious way that the new administration under President Marcos is very focused on bringing in foreign direct investment, of making sure that potential investors understand what they're getting and making it more friendly for these investors. So I'm very excited about that. There's a lot of infrastructure projects that we need to work on in the Philippines. Again, the Philippine Government is open to the idea that public private sector partnerships will fund a lot of these infrastructure projects and we're already beginning to see it at the Bank of the Philippine Islands, where we've done a couple of landmark transactions to build infrastructure last year. And then finally, I think tourism is a big potential for the Philippines. I think it's something that's hardly been tapped through it. I think it was picking up just before the pandemic, we have to rebuild a lot of that. But I think as the global economy reopens, and people begin to scratch that itch to travel, we just need to do our right job here in the Philippines and market ourselves. And I think tourism will be and could be and will be very big in this country. And certainly, many sectors of our economy are positioned for that.

Irza - AIBP: 30:42

Yeah, I think you raise a very good point. Just before COVID Actually, I was receiving a call of almost once a month from friends in North Asia, Japan, Korea, and they kept asking me, have you been to Philippines? Have you been to Cebu? Have you been to Boracay? And now Palawan as well. So I think that will definitely come back. And like you said, my first job actually was at a bank which was founded a little bit, a few years before BPI, a little bank called Lehman Brothers. Back in 2008, before the crisis, you know, we were doing a lot of Philippines ROP, credit bonds and that was when Philippines was still high yield. But in 2013, Philippines obviously was upgraded to an investment grade and there's just so much potential that 110 million people, median age 24 years old. I think you're spot on there. I'm actually very excited to see what's in store for Philippines. And yeah, thank you so much, TG, for taking the time to speak with us today. Wonderful having a chat with you, and we hope to see you again pretty soon.

TG - BPI: 31:43

Thanks so much, Irza. Thanks to AIBP.

Irza - AIBP: 31:46

Thank you, see you.

TG - BPI: 31:47

See you.

Voice Over: 31:50

We hope you've enjoyed the episode. For more information about business growth in the ASEAN region, please visit our website www dot IoT business hyphen platform.com