EastWest Bank profit rises despite higher provisions

Published November 12, 2020, 5:00 AM

by James A. Loyola

East West Banking Corporation  (EW) posted a 28 percent growth in net income to P5.9 billion in the first nine months of 2020 from P4.6 billion in the same period last year as net revenues rose 27 percent to P26.7 billion.

In a disclosure to the Philippine Stock Exchange, the bank said this was due to higher net interest margins and higher trading gains.

Net interest income, which accounts for 75 percent of its revenues, was 33 percent higher at P20.1 billion mostly due to lower funding costs. The bank sustained its industry leading margins, with net interest margin at 8.3 percent. 

Non-interest income, on the other hand, increased by 13 percent to P6.6 billion mostly accounted for by the three-fold increase in fixed income securities Trading Gains.

Fees and commissions were 25 percent lower at P3.0 billion due to the general slowdown in business activities as a result of the lockdowns, the Bayanihan Act, and assistance to customers. 

Meanwhile, operating expenses, excluding provisions for losses, decreased by 3 percent to P12.0 billion. Cost-to-income ratio improved to 45 percent from last year’s 59 percent.

The bank continued to book higher loan loss provisions, with P2.2 billion for the third quarter. Total provisions for the 9-month period is P7.7 billion, three times more than the previous year.

The bank said a significant part of the provisions are pre-emptive in nature to anticipate the cashflow impact to households and businesses of the virus-induced disruptions. 

“We now revise our net income estimate for the year to at least P7.0 billion. While we expect net interest margins to hold and income before loan loss provisions to trend higher, there are still epidemiological uncertainties from the virus and its full economic impact is still playing out,” said EW Chief Executive Tony Moncupa.

He noted that, “While we certainly hope that we can soon return to normal life, we want to be prepared to increase provisions for losses as the pandemic damage unfold and ensure the continued resilience of our balance sheet.” 

Loans were down 6 percent to P246.5 billion, mostly due to contractual maturities and lower working capital requirements of corporate loan borrowers. Total maturities were about P10.0 billion.  Deposits increased by 11 percent to P324.3 billion, with low cost CASA increasing by 26 percent to P211.5 billion. The CASA ratio improved to 65 percent, from the previous year’s 58 percent.