EW: 3Q26 operating gains absorbed by credit costs
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.
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.
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.
The planned P9 billion rights offering should strengthen capital, although pricing and dilution warrant assessment. We would monitor delinquency trends before becoming more constructive.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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