EastWest Bank profit down 74.9% in Q1

EAST WEST Banking Corp. (EastWest Bank) recorded a 74.9% drop in its net profit in the first three months of 2022 due to a lower net interest income amid a decline in consumer loans and as it posted a trading loss.

The bank’s net income stood at P507.5 million for the first quarter versus the P2-billion net profit it booked in the same period last year.

This translated to a return on equity (RoE) of 3.4%, down from the 14.4% it posted in the same period last year. The bank expects to maintain its RoE at around 7% to 8% for 2022 and a return to the double-digit level in 2023.

Return on assets also dropped to 0.5% in the first quarter from 2% a year prior.

Despite the decline in its first-quarter net profit, the lender is keeping its income guidance for the year at around P4 billion, it said in a disclosure to the local bourse on Monday.

“We have a weak Q1 income due to the lag effect of the pandemic. Our consumer-focused balance sheet bucked the trend, and allowed the bank to book higher income while the overall industry was going lower in 2020. We now have the reverse. Our Q1 declined while the industry as a whole increased as the full impact of the consumer decline is fully manifesting,” EastWest Bank Senior Executive Vice-President and Chief Lending Officer Jacqueline S. Fernandez was quoted as saying.

“We expect to align with the industry trend as the pandemic wanes, and the economy returns to higher growth. We expect 2022 core income to be around 2021 levels and get back to double-digit equity return in 2023,” Ms. Fernandez said.

The bank’s total revenues declined by 26% year on year to P5.8 billion last quarter from P7.82 billion. For the full year, it expects its revenues, excluding trading, to come in at the 2021 level of around P25 billion.

EastWest Bank’s net interest income fell by 12% to P5.21 billion in the first quarter from P5.91 billion in the comparable period in 2021.

“The 12% or P765.4-million decline in interest income was partly offset by the reduction in interest expense of 11% or P64.6 million. Interest income on loans declined by 16% to P5 billion driven mainly by the lower volume of consumer loans while interest income on securities increased by 46% to P561.3 million mainly from the accrual portfolio build-up,” the bank said in its quarterly report.

Gross loans decreased by 6% to P219 billion as consumer credit, which accounts for 72% of the bank’s portfolio, declined 11% to P157.4 billion, mainly due to a decline in auto loans and “as run-offs outpaced new loan releases due to weak demand and prudent risk-taking,” Meanwhile, corporate loans rose by 9% to P61.6 billion.

“The bank has resumed its loan rebuilding activities… It expects its consumer loans to start showing net increases beginning the second half of the year. Related to the effort to recover lost loan volumes, the bank expects loan-related fees to start growing as well,” the lender said.

The bank’s nonperforming loan (NPL) ratio stood at 11% at end-March, up from last year’s 10.4% “due to the impact of the pandemic to borrowers in meeting their obligations and the overall decline of the bank’s total loan portfolio.”

Its provisions for losses rose 42% to P1.03 billion and made up 2.2% of its gross loans. The bank said it expects total provisions for the year to end at around P4 billion, the same level seen in 2021.

Meanwhile, non-interest income excluding trading gains was also lower by 22% at P825.6 million.

The bank saw a P229.9-million loss from its securities trading and foreign exchange activities in the quarter versus the P854.1-million gain it booked last year.

“The wide variance is a result of the base effect as trading income for 2021 was higher than usual. In 2021, the trading gains were higher than the long-term average as low interest rates were maintained after the substantial reduction early in the pandemic. In 2022, interest rates moved higher resulting in the unusual trading loss,” it said.

The bank’s total operating expenses, excluding provisions for losses, declined by 5% to P4 billion.

Cost-to-income ratio was at 69.4%, higher than the 53.9% seen last year.

On the funding side, the bank’s total deposits stood at P323.9 billion, 5% higher than the same period last year. This was driven by the 14% increase in low-cost current account, savings account or CASA deposits to P245.3 billion. In contrast, high-cost time deposits decreased by 15% to P78.7 billion. CASA ratio improved to 76% from 70%.

EastWest Bank’s total assets as of March stood at P404.2 billion, 5% higher than P385.7 billion in the same period last year.

Its capital adequacy ratio was at 15.2% as of March, up from 14.4% a year prior. The bank’s common equity Tier 1 ratio stood at 14%, also higher than the 13.2% seen last year.

EastWest Bank shares ended trading at P7.25 apiece on Monday, down by 10 centavos or 1.36%. — K.B. Ta-asan