EW: 3Q26 operating gains absorbed by credit costs

From AB Capital's The Opening Bell: Three Moves

Event

EastWest's 3Q26 net income fell 36% YoY to P1.6 billion, broadly flat QoQ, bringing 9M26 earnings to P5.0 billion (-24%). The decline came despite 16% revenue growth and 24% PPOP expansion as it booked P15.9 billion in provisions in 9M26.

View

We think the underlying franchise continues to deliver, with NII up 22%, fee income rising 10%, and cost-to-income improving to 48.4% from 51.4%. However, provisions absorbed roughly 71% of PPOP, highlighting how consumer credit risks are constraining earnings conversion despite stronger operating leverage.

Catalyst

Credit normalization remains the main catalyst. Risks remain elevated given 90% NPL coverage, while CET1 has fallen to 11.4% from 12.7% a year ago. In our view, EW's revenue momentum supports its recovery potential, but a sustained earnings rebound requires lower credit costs and better reserve coverage.

Action

The planned P9 billion rights offering should strengthen capital, although pricing and dilution warrant assessment. We would monitor delinquency trends before becoming more constructive.

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