EastWest Bank’s net profit drops in Q2

EAST WEST Banking Corp. (EastWest Bank) posted a lower net profit in the second quarter due to lower fee income and as it saw a loss from fixed-income trading.

The lender’s attributable net income stood at P1.01 billion in the second quarter, down from the P1.78 billion seen in the same period last year.

This brought its first semester net profit to P1.52 billion, also lower than the P3.8 billion booked a year prior.

“Lower average loan levels accounted for P447 million of the drop,” EastWest Bank said. “The P1.7-billion drop in fixed-income trading was due to the global rise in interest rates as monetary authorities ramped up efforts to contain inflation. The change was also magnified as the previous year’s P1.3 billion trading gains were higher than usual, while Q1 2022 was a loss of P420.7 million from the normal positive numbers.”

The lender’s first semester net income translated to a return on equity of 5.2%, down from 13.3% a year prior, while return on assets also declined 0.7% as of June from 1.9%.

The bank said it now expects its total revenues, excluding trading, to end the year at P26 billion from the P25-billion guidance it gave in the first quarter.

“However, with the uncertain trading income, the bank still expects net income at around P4 billion. By the fourth quarter, EastWest Bank’s quarterly income, excluding trading, should have recovered pre-pandemic levels and trend towards P1.25 billion, or P5 billion on an annualized basis,” it said.

“Given the favorable outlook, the bank expects its recovery to sustain its momentum. Loans should continue increasing, and fixed-income securities investments should end at higher levels. The bank believes the levels of interest rates, especially the US dollar, are appropriate to build its investments books. And while market liquidity could tighten, the bank expects deposit costs will remain at reasonable levels,” EastWest Bank added.

The bank’s net interest income grew to P5.84 billion in the second quarter from P5.58 billion a year ago.

Net interest margin was at 6.7% as of June from 7.2%.

Still, total operating income dropped to P6.81 billion from P7.17 billion. This was partly due to the P158.59-million trading and securities loss seen by the bank last quarter versus the P82.26-million gain seen last year.

Income from service charges, fees and commissions also declined to P639.3 million from P1.1 billion last year.

On the other hand, EastWest Bank’s operating expenses grew to P5.29 billion from P4.89 billion. Provisions for impairment and credit losses went up to P1.08 billion from P705.62 million.

The bank’s gross loans inched up by 1% to P227.6 billion as of June, which it said was mainly from business lending in line with the industry’s recovery.

Business loans grew by 5% to P59.6 billion, while consumer loans, which account for 74% of the bank’s portfolio, inched down by 1% to P168 billion amid a decline in auto, mortgage and personal credit.

“This quarter’s releases, however, have started to improve driven by demand and normalization of credit policies,” EastWest Bank said.

The bank’s gross nonperforming loan (NPL) ratio was at 9.8% as of June, down from last year’s 10.4% “due to the impact of the pandemic on borrowers in meeting their obligations and the overall decline of the bank’s total loan portfolio.”

On the funding side, total deposits grew by 6% to P335.7 billion as low-cost current account, savings account or CASA deposits increased by 11% to P254.7 billion “as the low-interest rate environment prompted the buildup of excess liquidity while the bank watched the timing of investing in higher-earning fixed-income securities and loans.”

“In contrast, time deposits decreased by 8% to P81 billion from the lower funding requirements of the bank. CASA ratio improved to 76%, from the previous year’s 72%,” the lender said.

EastWest Bank’s capital adequacy ratio was at 14.8% as of June, up slightly from 14.7% a year prior, while its common equity Tier 1 (CET1) ratio was steady at 13.6%, both above the minimum levels required by the central bank.

“The bank aims to maintain a CET1 ratio of 12-13%, which it deems appropriate given its business model,” EastWest Bank said.

The lender’s assets stood at P415 billion as of June, up by 4% from P398.9 billion a year ago.

EastWest Bank’s shares went down by nine centavos or 1.28% to close at P6.95 apiece on Monday. — BVR