EastWest Bank’s Q1 profit up 75%, loan provisioning jacked up
Gotianun family-led East West Bank grew its net profit in the first quarter by 75 percent year-on-year to P2.3 billion even as the bank jacked up loan loss provisioning to prepare for fallout from the coronavirus (COVID-19) pandemic.
The bank increased its buffer against potential credit losses by about 2.8 times last year’s provision to P2.4 billion in the first quarter.
The higher income in the first three months was attributed to better margins from its core lending and deposit-taking business alongside higher trading gains and improved operating efficiency, the bank disclosed to the Philippine Stock Exchange on Tuesday. This performance translated to a return on equity of 18 percent.
“We were looking forward to another record year, at least P8 billion in income for 2020 – until COVID-19 struck. Now, we have to be ready that profits could be lower this year. We have to book anticipative provisions for loan losses and may need to continue doing so in the coming months as the economic damage to households and businesses from the virus-induced disruption unfolds”, EastWest chief executive officer Antonio Moncupa said.
Net interest income, accounting for 69 percent of revenues, increased by 42 percent year-on-year or P1.9 billion. Net interest margin (NIM) increased by 173 basis points to 8.1 percent from the year-ago level as market liquidity and deposit rates normalized.
In the early part of 2019, deposit costs were substantially higher, then curbing bank margins.
Non-interest income, on the other hand, increased by 52 percent or P1 billion, mainly driven by securities trading gains.
EastWest grew its balance sheet by 3 percent to P384 billion. Its loan book expanded by 6 percent to P261.4 billion, marking the slowest pace of growth in years, as lending activities became less aggressive lending in consideration of the COVID-19 pandemic.
With less assets to fund, deposits increased by only 3 percent to P294.3 billion as the bank just replaced higher-cost time deposits with low-cost funds, resulting in an improvement in margins.
On the expenditure side, operating expenses, excluding provisions for losses, increased by 14 percent year-on-year to P4.6 billion due to higher compensation costs. However, the bank spent only 48 centavos to earn every peso, compared to the previous year when it spent 60 centavos to earn every peso.
“This pandemic is unprecedented and is still playing out. With no historical guide to anchor on, it is difficult to estimate bad debts. A lot now depends on government policy interventions. Consumers and businesses, especially MSMEs (micro, small and medium enterprises), need assistance. Fortunately, the country has healthy fundamentals and programs to assist households and businesses to contain the damage are on the table. These unfolding programs and the swift, proactive and decisive policy adjustments of the BSP (Bangko Sentral ng Pilipinas) give us hope that the damage could be managed, and the recovery will be fast. But let’s see how it goes,” Moncupa added.
Since the pandemic started, the BSP has issued a series of policy initiatives to help the economy by encouraging banks to continue lending. It has cut the deposit reserve requirement by 200 basis points, slashed interest rates by 125 bps to a historical low of 2.75 percent, and allowed loans to MSMEs to be counted as part of reserve requirement alongside regulatory relief to banks.