EastWest to set aside P10B loan loss buffer this 2020

Gotianun-led EastWest Bank plans to book P10 billion in provisions for probable loan losses this year as it prepares for fallout from the coronavirus (COVID-19) pandemic.

Before the pandemic erupted, the bank was originally expecting to book P12 billion in profits coming from the growth of its core deposits and loans businesses and trading gains from government bonds. But as the bank is setting aside higher provisions for bad loans in anticipation of the adverse economic impact of the virus to the economy and its borrowers, EastWest Bank chief executive officer Antonio Moncupa estimated that net profit this year may only reach P5 billion to P6 billion compared to P6.2 billion last year.

“Even if we expect higher provisions because of the nature of our loan portfolio (being a consumer loan-focused bank), we still expect to generate an above-industry return and profitability. And I think that’s what matters: sustainability and the ability of the bank to continue to grow,” Moncupa said in a press briefing after the bank’s stockholders meeting on Thursday.

The P10-billion loan loss buffer targeted for this year is equivalent to 4 percent of its projected loan book, compared to the 1.5 percent ratio last year.

“Comparing it to total loans gives you a sense of proportion to the extent of the damage,” Moncupa said, adding this would be the “more relevant” metric as opposed to the usual way of comparing loss provisions to bad loans.

“We were in a roll after our banner year in 2019. This year is supposed to be even much better. But it was not to be. We are nevertheless happy that our balance sheet is resilient and could churn good profits that we can face this pandemic squarely,” EastWest bank chair Jonathan Gotianun said during the bank’s stockholders meeting.

EastWest reported to its shareholders that as of April 2020, it was almost halfway to its target, with total provisions at P4.5 billion, equivalent to 1.7 percent of its total loans.

“The truth is we really don’t know yet the damage from the pandemic. But we think the prudent thing to do is to anticipate that the pandemic will adversely affect some segments of our borrowers. While we have increased our provisions for bad loans, we stand ready to assist our borrowers to get through these challenging times” Gotianun added.