GOTIANUN-LED EastWest Bank (EastWest) reported that its net income increased by 75 percent to ₱2.3 billion and increased its loan loss provisions by ₱1.6 billion to ₱2.4 billion, 2.8x higher from last year in anticipation of COVID-19 fall out.
“We were looking forward to another record year, at least ₱8.0 billion in income for 2020 — until COVID-19 struck. Now, we have to be ready that profits could be lower this year. We have to book ‘anticipative provisions’ for loan losses and may need to continue doing so in the coming months as the economic damage to households and businesses from the virus-induced disruption unfolds,” Tony Moncupa, EastWest CEO said.
The higher income in the first three months of 2020 was driven by better margins from its core lending and deposit-taking business and higher trading gains.
The Bank reported a Return on Equity (ROE) of 18 percent.
EW joins the growing number of big banks increasing loan loss provisions because of COVID-19.
The lockdown, the only viable response to stem the spread of the virus until a vaccine is found, has shuttered the economy and is expected to make it difficult for some businesses and consumers to service loans.
Net revenues rose by 45 percent to ₱9.6 billion from ₱6.6 billion in the same period last year.
Operating expenses, excluding provisions for losses, increased by 14 percent to ₱4.6 billion from higher compensation costs.
Cost-to-income ratio improved to 48 percent from last year’s 60 percent. Provisions for losses more than doubled to ₱2.4 billion, mostly in anticipation of the pandemic economic fallout.
EastWest’s Total Assets stood at ₱384.1 billion or 3 percent higher from the same period last year.
Total loans increased by ₱15.2 billion or 6 percent higher to end at ₱261.4 billion.
The bank’s Asset and Loan growth for the quarter were among its lowest in years, partly due to less aggressive lending in consideration of the virus.
With less assets to fund, deposits increased by only 3 percent to ₱294.3 billion as the bank just ‘replaced its time deposits with low-cost funds,’ EastWest said.
“This pandemic is unprecedented and is still playing out. With no historical guide to anchor on, it is difficult to estimate bad debts. A lot now depends on government policy interventions. Consumers and businesses, especially MSMEs, need assistance. Fortunately, the country has healthy fundamentals and programs to assist households and businesses to contain the damage. These unfolding programs and the swift, proactive and decisive policy adjustments of the BSP give us hope that the damage could be managed, and the recovery will be fast. But let’s see how it goes,” Moncupa added.
Since the pandemic started, the BSP has issued a series of policy initiatives to help the economy by encouraging banks to continue lending. It has cut the deposit reserve requirement by 200 bps, cut interest rates by 125 bps to a historical low of 2.75 percent, and allowed loans to MSMEs to be counted as part of reserve requirement. It also gave banks regulatory reliefs.
