MANILA, Philippines — Anemic credit growth as a result of a pandemic-induced economic meltdown weighed on Gotianun-led East West Banking Corp.’s bottom-line numbers in the first quarter, reflecting a broader struggle of the local banking industry.
In a disclosure to the stock exchange on Thursday, EastWest reported a net income of P2 billion in the first 3 months of the year, down 10% year-on-year.
But investors appeared to have brushed off the less-than-stellar results. On Thursday, shares in EastWest gained 0.43% to close at P9.40 each.
Financial results showed net revenues sagged 18% on-year to P7.8 billion during the period. Stripping out earnings from trading, core revenues plummeted 11% to P7.0 billion. The company blamed “lower loan volumes across loan products, higher taxes, and lower trading gains” for its lackluster performance last quarter.
Broken down, net interest income — the difference between interest income and interest expense — fell 11% year-on-year due to weak lending activity and less upbeat trade bond trading as a result of a pandemic-led recession. Worsening the slump was the interest rate cap on credit cards imposed by regulators last year, which pulled down the bank’s net interest margin to 7.5% from 8.1%.
“This is consistent with the pandemic driven 4.2% drop in Q1 national output. Lower GDP typically means lower loan growth,” EastWest said.
Meanwhile, trading gains in the first quarter stood at P854.1 million, down an annualized 52%.
Higher taxes also took a big bite off the company’s earnings following a “one-time adjustment” as a result of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law that cut the corporate income tax rate from 30% to 25%. “Banks like EW have significant deferred tax assets from their accumulated provisions booked under the old tax rate of 30% which have to be adjusted to 25% with the implementation of the new law,” the bank explained.
But these losses were offset by higher deposits on low-cost current and savings account and 70% drop in loan loss buffers since most of the pandemic-induced provisions have been booked last year.
“Unless the virus takes a turn for the worse and significantly infects more Filipinos, provisions for loan losses should be lower in 2021.” Jackie Fernandez, chief lending officer, said.
Moving forward, Tony Moncupa, company chief executive, expects lower provisions to continue cushioning the impact of falling net interest margins and trading gains on EastWest’s balance sheet. “Fortunately, EW as with the rest of the banks, have growing capital buffers which should allow the industry to remain resilient and help the economy recover once the virus is subdued,” Moncupa said.