EastWest profit up 4% to P6.5 billion

MANILA, Philippines — East West Banking Corp. grew its income by four percent to P6.5 billion last year despite the doubling of provisions for potential loan losses due to the impact of the global health crisis.

EastWest president and chief executive officer Antonio Moncupa Jr. said the COVID-19 pandemic defined the Gotianun-led bank’s operating results last year.

“Lockdowns, social distancing, and limited mobility resulted in the economy contracting by 9.5 percent and appropriately prompted the monetary authorities to loosen financial conditions,” he said.

The economy stalled when the government imposed a strict lockdown starting March last year to slow the spread of the disease, resulting in a record economic contraction that ended 21 years of growth.

“For EastWest, this meant lower growth as the uncertainties put resiliency at the top of its agenda. It also resulted in lower volume of new business, less transactions across all businesses, and higher provisions for loan losses,” Moncupa added.

The provision for loan losses reached P9.8 billion last year or 2.4 times the P4 billion earmarked in 2019. The bank’s non-performing loan (NPL) ratio increased to 4.6 percent from 2.9 percent.

“While the bank has been among the top three most profitable universal banks in the last four years, the prospect of a five-peat is uncertain for 2021. The shifting contours of the coronavirus pandemic make it difficult to pin down a 2021 income guidance,” Moncupa said.

The bank’s net revenues rose by 16 percent to P33.4 billion from P28.7 billion on lower funding costs. It sustained its industry leading margins, with net interest margin at 8.1 percent.

“On the other hand, lower rates and the consequent lower funding costs resulted in higher net interest margins and higher trading gains. These offsetting tendencies drove the flattish operating results of the bank,” Moncupa said.

EastWest’s non-interest income decreased by five percent to P6.9 billion mostly accounted by the decline in fees and other income due to the pandemic induced slowdown in business activities, the Bayanihan Act, and assistance to customers.

It booked a P2.7 billion “modification loss” or the value of the assistance given to loan borrowers over the life of their loans that arose from the mandated and bank initiated cash flow relief programs.

The bank said the lower fees and cost of the debt relief programs were mitigated by the P4.2 billion increase in securities trading gains. The pandemic resulted in the global monetary easing that pushed interest rates lower and created opportunities for trading income.

The bank’s operating expenses, excluding provisions for losses, slipped one percent to P16.2 billion. Cost-to-income ratio improved to 49 percent from 57 percent.

EastWest’s loan book declined by nine percent to P243.7 billion mostly due to contractual maturities and lower overall demand as businesses and households held off borrowing due to the pandemic.

On the other hand, the bank’s deposit base increased by eight percent to P329.1 billion, with low-cost checking and savings accounts (CASA) increasing by 23 percent to P228.8 billion.

The higher income and slower growth of risk-weighted assets improved capital buffers with the bank’s capital adequacy ratio to 13.8 percent and common equity tier 1 ratio to 12.9 percent.

“Fortunately, the bank with its higher capital buffers and the loan loss provisions in 2020 is in a good position to face the remaining pandemic challenges and the rebuilding that will follow the vaccines,” Moncupa said.