The Philippine Rating Services Corporation (PhilRatings) has upgraded East West Banking Corporation’s (EWBC) issuer credit rating from PRS A minus (corp.) to PRS A plus (corp.) because of the bank’s improving profitability; high deposit growth rate; improving asset quality; strengthened presence in consumer lending; and continued shareholder support.. This means the bank has an ABOVE AVERAGE capacity to meet its financial commitments relative to that of other Philippine corporates. The company, however, is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated corporates. A plus or minus sign is included to further qualify the rating.
Per report, EWBC’s net income improved from P137.3 million in 2007 to P169.5 million in 2008 and P416.7 million for the first nine months of 2009. Growth in net income for both periods were brought about by an increase in net interest income from P1.4 billion in 2007 to P2.0 billion in 2008 and P3.9 billion for the first three quarters of 2009 due to a combination of higher net balance sheet spread and a larger earning asset base. In addition, non-interest income was higher at P1.2 billion for the first nine months of 2009 from P960.0 million in 2008 and P547.5 million mainly due to the significant growth in service charges, fees and commissions.
EWBC deposits grew at a significantly high rate of 25.8% in 2008 and another 32.7% for the first nine months of 2009, outpacing the universal and commercial bank deposit growth rate of 16.2% in 2008 and 5.0% for the first nine months of 2009. Deposit growth in the first nine months of 2009 was in part due to the merger of AIG Philam Savings Bank, Inc. (AIGPSB) Group with EWBC. Growth in deposits, however, has been coming increasingly from higher cost deposits. Going forward, the Bank’s policy for writing off bad debt, as well as its policy for provisioning for impairment and credit losses will remain one of the key factors in further lowering its NPA ratio. EWBC’s provision for impairment and credit losses was at P100.9 million in 2007 (0.3% of average total assets) but had since increased. Provision for impairment and credit losses improved to P488.2 million (1.1% of average total assets) in 2008 and P802.2 million (1.4% of average total assets) for the first nine months of 2009.
The consolidation of AIGPSB Group into EWBC strengthens the bank’s presence in consumer lending. It allowed EWBC to place as the 6th largest player in both the credit card and auto loan businesses. The higher yielding consumer loans should also improve the Bank’s overall asset yield. As a subsidiary of a larger conglomerate, EWBC benefited from raising additional capital from its parent. This capital raising capacity was evident in the P1.5 billion capital infusion made by FDC Forex Corporation, a wholly owned subsidiary of Filinvest Development Corporation (FDC), in 2007. This was again demonstrated by a P2.0 billion capital infusion corresponding to the preferred shares issuance in June 2009, with P1.2 billion coming from FDC and P800 million coming from FDC Forex Corporation.
However, it is important to note that PhilRatings’ ratings are based on available information and projections at the time that the rating review is on-going and may change the rating at any time, should circumstances warrant a change.
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