March 19, 2014

EW nets P2.1b for 2013

In a disclosure to the Exchange yesterday, EastWest Bank (EW,Buy) said that its net income for 2013 reached P2.1b, 13.2% higher YoY. This translated to RoE of 11.1% and RoA of 1.6%. EW grew its assets 17.2% YoY to P142.3b. This was driven primarily by the 32.1% expansion inloans to P95.6b in 2013. EW’s consumer loans, which grew 29.4% to P48.9b, accounted for 51% of total loans. Meanwhile, total deposits grew 21.9% to P111.2b, driven the bank’s expanded branch network.

For 2013, EW opened 55 new branches, ending the year with 347 branches. As of yesterday, EW’s consolidated branch network, including those of its subsidiaries, stood at 369. These drove the 37.9% YoY increase in net interest income (P8.4b) and net interest margin of 8.7% (the highest in the industry). On the other hand, non-interest income grew 29.1% YoY to P4.8b, driven by the increase in fee-based revenues.

Meanwhile, operating expenses grew 24.4% YoY to P7.8b, as the bank continued with its aggressive branch roll-out. Likewise, provisions for losses increased 102.4% YoY to P3.1b as the bank continued to build buffers for potential loan losses. The bank’s CAR ratio stood at 17.0% and Tier 1 Ratio was at 13.8% as of end-2013.

Our take: EW’s 2013 results are above consensus forecasts of P2.0b but below our estimate of P2.5b. The net revenues (net interest income + non-interest income) were largely in-line with our forecast. The variance vs. our forecasts was mainly due to higher than expected provisions, partially offset by lower than expected operating expenses and taxes.

The uptick in provisions was mainly due to the aggressive buildup of the bank’s credit card portfolio, while the opex growth was due to start-up costs associated with the opening of new branches. Though we expect the bank to continue incurring these costs in 2014, we have a positive view on the bank’s efforts to build a wider distribution network and a bigger consumer loan portfolio.

We believe that the growth in the bank’s opex and credit costs should normalize starting 2015. This will then allow the bank to fully benefit from having a bigger base for interest earnings and a stronger market presence. We expect the bank to reap the benefits of its expanded branch network and consumer loan portfolio by 2015. – WealthSec