Bank of the Philippine Islands (BPI.PH) said Wednesday its first-half net profit surged 52% from the year-earlier period helped mainly by record profits in the first quarter but the company's chief operating officer warned of challenges ahead, including a squeeze on interest margins, which may weigh on earnings in the second-half.

BPI, the Philippines' third-largest lender by assets, said net profit in the January-June period climbed to 9.4 billion pesos ($225 million) from PHP6.2 billion a year earlier due mainly to strong revenue growth and record earnings in the first quarter, when the lender booked large trading gains.

In the April-June quarter, net profit just rose 8% to PHP3.6 billion from a year earlier.

"We expect challenges going forward especially on our net interest margin with the recent cut in the BSP overnight borrowing rate," said BPI COO Gil Buenaventura, referring to the 25-basis-point rate cut implemented by the Bangko Sentral ng Pilipinas in July, increasing the total rate cut to 75 basis points since the start of the year.

Still, Mr. Buenaventura said the bank was ready to seize on opportunities arising from strong domestic economic growth. He said the bank is "actively participating" in several infrastructure deals, particularly those being pushed by the government under its public private partnership program.

He said that BPI remains confident it remains "on track" to delivering its target of 15% return on equity for 2012. With first-half net profit pointing to a 21% return on equity, the bank's earnings growth could moderate in the second half, he said.

Net interest income in the January-June period rose 9% and fee-based income gained 51%, the bank said in a statement to the stock exchange.

The lender's loan portfolio totaled PHP480 billion in the first half, a 17% increase from a year earlier.

At 0355 GMT, shares of BPI were up 1.9% to PHP74 as investors welcomed the first-half result. In comparison, the bellwether PSEi was down 0.2%.

Write to Cris Larano at cris.larano@dowjones.com and Rhea Sandique-Carlos at rhea.sandique-carlos@dowjones.com

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Bank of Philippine Islands 1st Half Net Jumps 52%; Record 1Q Profit Boosts