EastWest 1H 2021 income at ₱3.8 billion, sustains above-industry returns with ROE at 13.3%

Gotianun-led EastWest Bank (EW) posted a net income of ₱3.8 billion in the first semester of 2021, normalizing from last year’s elevated level of ₱4.5 billion.  The lower income was mainly due to lower loan revenues and trading gains.  Return on equity (ROE) was at 13.3%.

Total revenues for the first half of the year declined by 19% to ₱15.0 billion, primarily driven by lower net interest income (NII) and lower trading gains.  NII or the difference between interest income and interest expense, was down 14% to ₱11.5 billion, due to lower loan levels and yields on both loans and fixed income securities. This was partly cushioned by the decline in funding costs as the BSP maintained its accommodative monetary policy.  Net interest margin (NIM) was at 7.3%, as its consumer-heavy loan portfolio allowed the Bank to maintain its industry leading margins.

Trading gains was at a more normal ₱1.6 billion, from the ₱3.1 billion booked last year.  Last year, the BSP’s decisive monetary actions to loosen financial conditions, created opportunities for higher than normal trading gains.   Fee income, grew by 22% to ₱2.2 billion as the economy and banking transactions started to improve.

Taxes, on the other hand, increased from the one-time adjustment as a result of the CREATE bill that reduced 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% that had to be adjusted down to the new tax rate.

Provisions for expected losses are lower by 74% to ₱1.4 billion as most of the pandemic induced provisions have been recognized in 2020.  “Based on current economic trends and the expected acceleration of vaccination, we believe the worst is over and economic conditions should start to improve.  Provisions for loan losses this year should be lower from the abnormally high levels last year.  Nonetheless, we continue to monitor and manage our credit risk taking” said EW Chief Lending Officer, Jackie Fernandez.

EW’s total loans were lower by 12% to ₱225.8 billion from weak demand and prudent risk taking of the Bank.  Deposits meanwhile increased by 6% to ₱317.8 billion, driven by the 21% growth in CASA, offsetting the 20% decline in time deposits.  The shift was mainly due to the narrowing benefit of placing in time deposits as rates are at their lows.  CASA ratio improved to 72%, from the previous year’s 63%.

The Bank’s capital position remains strong   with capital adequacy ratio (CAR) and common equity tier 1 (CET1) ratio, improving to 14.7% and 13.6% respectively, well above regulatory requirements.

“We expect to sustain decent level of profitability this year.  There is a palpable sense of optimism in the Bank.  The road ahead may not be a smooth as we all wish it to be, but we believe the economy is at the inflection point of recovery.  We expect to come out from this pandemic with higher capital buffers and in a good position to recover lost ground and resume our growth programs  “  EW CEO, Tony Moncupa concluded.