EastWest to omit dividends to raise expansion funds

East West Banking Corp. (EastWest Bank) said it will not pay dividends until next year assuming progress is made in containing the pandemic, citing the need to retain capital to internally fund its expansion.

At the shareholder meeting Friday, EastWest Bank President and CEO Antonio C. Moncupa, Jr. said its board and management remain committed over the long term to a dividend policy of about 20-30% of earnings, as per the bank’s five-year plan.

However, Mr. Moncupa said the bank will resume payouts next year as it puts together funding for its expansion.

“[In 2015], we said the bank will come back for one last time for another stock rights (offer), as we expected to ramp up growth. In 2019, the stock rights (offering did) not push through, the bank was earning enough to finance its growth and it decided to internally finance the needed growth capital,” he said.

“That, unfortunately, meant that it has to accumulate earnings to finance the planned growth, an accumulation that is supposed to be sufficient by end-2021 so we start a dividend payout in 2022. The plan is still on and if the virus behaves well, we may start dividends in 2022,” he added.

The last time the bank launched a rights offer was in April 2015, raising P8 billion. It announced in 2018 plans to pursue another rights offer, which did not materialize.

A long pandemic may delay the return of dividends further, he said.

“The virus and the pandemic are still playing out. If it turns out worse than expected, we may possibly review the policy in order to preserve capital and face the challenges of the pandemic. The plan is really to start, now that our common equity tier 1 capital has reached a level that will allow us to declare dividends safely,” Mr. Moncupa said.

He said the bank is expecting to continue with its expansion moving forward to improve sales and marketing across all its businesses, especially in digital, and less so in the bricks and mortar side of operations.

He said the priority is to upgrade the bank’s information and technology (IT) infrastructure as the bank moves towards a balance sheet level of at least P1 trillion.

EastWest is expecting profits to be muted this year in line with the overall industry, he said, with reduced earnings from trading activity, the unfolding impact of slower credit growth, and interest rate margins likely declining.

He said the bank could see non-performing loans (NPL) and provisioning for loan losses ease off this year, improving further in 2022, on the back of a pick up in vaccination and a broader economic rebound.

“The banking industry is very strong, regulatory adjustments like the full implementation of Basel III have made sure of that. We expect the industry to recover from this pandemic in relatively good shape even if profitability in 2021 may have a temporary setback,” he said.

The bank’s net profit rose 4.8% to P6.5 billion in 2020 on the back of high interest income and strong trading gains.

Mr. Moncupa said the bank was able to post growth even during the pandemic and increased loan loss reserves because it is among the most consumer-focused universal banks, where margins are high.

Return on equity (RoE) was 12.3%, against 14% in 2019.

EastWest shares shed 2 centavos or 0.21% to P9.50 on Friday. — Beatrice M. Laforga