GOTIANUN-led EastWest Bank Corp. reported a net income of P2.0 billion in the first three months of 2021, 10 percent lower from last year’s P2.3 billion.
EastWest said in a statement the lower income was primarily driven by net interest income (NII), lower trading gains and higher taxes. NII, the difference between interest income and interest expense, was lower due to lower volume of loans and fixed income securities, the bank said.
“This is consistent with the pandemic driven 4.2-percent drop in Q1 [first quarter] national output,” the bank said. “Lower GDP [gross domestic product] typically means lower loan growth. The banking system registered a 4 percent decrease in loans in the first quarter.”
The bank said the interest rate cap on credit cards also contributed to the 11-percent drop in its NII.
The bank noted that the maximum rate of 24 percent for credit cards and similar loans set by the Bangko Sentral ng Pilipinas (BPS) in November last year significantly affected its net interest margin. EastWest’ NIM dropped to 7.5 percent from 8.1 percent in the first quarter of 2020.
While its trading gains at P854.1 million was still higher than normal levels, this was 52-percent lower than the first quarter of 2020.
“The bank expects trading gains to normalize moving forward due to the steady level of interest rates,” EastWest said. “Last year, there was a sharp increase in trading gains because of the significant drop in interest rates as the BSP loosened monetary policy in response to the pandemic.”
Taxes, on the other hand, increased primarily from the one-time adjustment as a result of the Corporate Recovery and Tax Incentives for Enterprises bill that cut the corporate income tax rate from 30 percent to 25 percent. Banks like EastWest have significant deferred tax assets from their accumulated provisions booked under the old tax rate of 30 percent, which have to be adjusted to 25 percent with the implementation of the new law.
The lower loan volumes across loan products, higher taxes and lower trading gains were offset by the improvement in the deposit mix in favor of low-cost current and savings account and the 70-percent drop in provisions for loan losses. Typically, when interest rates go lower, many bank customers tend to leave higher balances in their Casa accounts instead of investing in time deposits.
Return on equity was at 14.4 percent. Total assets ended at P385.7 billion,
almost flat from the first quarter of 2020’s P384.1 billion.
“Most of the pandemic induced provisions have been booked in 2020. Unless the virus takes a turn for the worse and significantly infects more Filipinos, provisions for loan losses should be lower in 2021,” EastWest Chief Lending Officer Jacqueline S. Fernandez was quoted in the statement as saying. “In the first quarter of last year, [the bank] significantly boosted its ‘preemptive provisions’ for loan losses to P2.4 billion in anticipation of the economic impact of the pandemic.”
Net revenues were lower by 18 percent to P7.8 billion. Excluding trading, core revenues dropped by 11 percent to P7.0 billion. Meanwhile, operating expenses excluding provisions for loan losses, decreased by 7 percent to P4.2 billion. Cost-to-income ratio stood at 53.9 percent.
Net income before tax amounted to P2.8 billion or 14 percent higher from last year mainly from the drop in provisions for losses despite the lower net revenues. Net income after tax however, amounted to P2.0 billion or 10 percent lower from last year due to the aforementioned impact of the Create Law. Excluding the adjustments from the new tax rate, net income after tax would have been P2.2 billion or only 5 percent lower from last year.
EastWest’s total loans and receivables were down 11 percent to P232.1 billion, mainly due to maturities and lower overall demand as businesses and households held off borrowing. Deposits on the other hand increased by 5 percent to P308.3 billion, with low-cost Casa increasing by 9 percent to P215.8 billion. The Casa ratio improved to 70 percent, from the previous year’s 67 percent.
The bank’s capital adequacy ratio and common equity Tier 1 ratio improved to 14.4 percent and 13.2 percent, from 12.5 percent and 11.3 percent respectively in the previous year.
This year “seems to be the reversal of the 2020 trend as the economy continues to move to the beat of the coronavirus.”
“In 2020, banks were beset by higher provisions and substantial drop in loan growth; this was offset by higher net interest margins and higher trading gains. For 2021, it seems that it will be lower provisions which will offset the drop in net interest margins and lower trading gains,” EastWest President Antonio C. Moncupa Jr. was quoted in the statement as saying. “Fortunately, EastWest, as with the rest of the banks, have growing capital buffers which should allow the industry to remain resilient and help the economy recover once the virus is subdued.”
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