EastWest Bank profit drops

EAST WEST Banking Corp. (EastWest Bank) saw its net income inch down in the first half of the year following the suspension of the public school teachers’ salary loan program.
In a regulatory filing on Tuesday, the Gotianun-led bank said it posted a net income of P2.2 billion in the six months ended June, down 11% from the P2.5 billion recorded in the same period last year.
EastWest Bank attributed the decline mainly to the “adverse development” regarding the loan program and its subsequent effect on its wholly owned subsidiary EastWest Rural Bank (EWRB).
EWRB is primarily focused on public school teachers’ salary loans under the Automatic Payroll Deduction System of the Department of Education (DepEd). However, this was suspended until June as DepEd worked on new guidelines.
The total impact of this development in the first half of the year is estimated at around P600 million.
Likewise, the lender’s net income declined by a percent to P1.28 billion in the second quarter from the P1.29 billion in a comparable year-ago period.
The bank’s net interest income climbed 7% to P9.6 billion in the January-June period from a year ago, mainly driven by consumer loans.
Consumer loans account for 72% of EastWest Bank’s total lending book of P162.8 billion.
Excluding EWRB, the bank’s consumer portfolio of car, home and personal loans were up 13%, allowing the bank to minimize margin compression. Business loans were flat at P61.8 billion, comprising 28% of the bank’s entire portfolio.
Fees and commissions stood at P2.1 billion, down 23% due to the lower contribution of its rural bank unit.
Trading income also ended the first half 10% lower due to increasing interest rates and tighter monetary conditions in both international and local markets, the bank said.
Operating expenses stood at P7.2 billion in the first semester, up 11% due to an increase in higher transaction taxes as the new and higher documentary stamp tax came into effect following the enactment of the Tax Reform for Acceleration and Inclusion Law this year.
On the other hand, EastWest Bank set aside P1.9 billion in provisions for impairment and credit losses, 4% lower from the previous year.
EastWest Bank’s profits translated to a return on assets of 1.4% and return on equity of 11.1%.
Capital adequacy ratio stood at 13.7% while common equity Tier 1 ratio was at 11.3%.
Overall, the bank’s total assets stood at P319.3 billion at end-June, up 3% year-on-year.
EastWest Bank President Jesus Roberto S. Reyes said significantly higher deposit costs in the first half of the year pushed the bank to be more circumspect on its rate-sensitive business borrowers.
“At any rate, we are guardedly optimistic that for the rest of the year, we will be able to resolve the remaining issues on the rural bank lending program to teachers,” Mr. Reyes was quoted as saying in the statement.
Antonio C. Moncupa, Jr., EastWest Bank vice chairman of the board, said the bank remains committed to public school teachers despite having some issues in the first semester.
“The bank will continue to strongly advocate not only access and lower rates but equally important, inclusive lending programs and equality among lenders. Our teachers deserve nothing less.”
In June, EastWest Bank raised P2.45 billion from the first tranche of its long-term negotiable certificates of deposit (LTNCD) program, which it wants to use to support its funding needs.
Shares in EastWest Bank gained 10 centavos or 0.70% to close at P14.42 each on Tuesday. — Karl Angelo N. Vidal