Accelerated Transformation for a FUTURE-READY YOU

ABOUT THE THEME
Improving operational efficiency. For years, this was the main focus of banks, and it was enough to drive profitability and overall growth.

Then COVID-19 came. Suddenly, client expectations and consumer behaviors changed, regulations tightened, technology-driven innovations accelerated, and new competition from non-banks changed the game.

The global pandemic not only accelerated transformation around the world; it also brought the future to the NOW.

In this 2021 Annual and Sustainability Report, themed “Accelerated Transformation for a Future-Ready You,” EastWest shares the highlights of its past year’s performance, as well as its ongoing initiatives to meet the challenges to its business today so that it can help its customers, people, and other stakeholders tackle the future with more confidence.

WHO WE ARE
Transforming to Serve You

Since opening our doors to the public on August 1, 1994, the name EastWest has become synonymous with steady growth.

We offer products and services to consumers and the corporate middle market through our stores, digital platforms such as EastWest Online and Mobile Banking, and alternative delivery channels such as ATMs and chat banking. Over the years, we have been making strides in providing products and services that answer the ever-changing needs of our chosen market, and making banking more accessible and convenient for our clients through EastWest Online Banking and the EastWest Mobile Banking App.

Supporting our growth is our parent company, Filinvest Development Corporation (FDC), one of the country’s leading conglomerates which has interests in banking, real estate, hospitality and tourism, power generation, infrastructure, and sugar.

We are committed to make our customers’ dream a reality by accelerating our transformation initiatives so that we will remain relevant, responsive, and resilient now and into the future.

As a testament to our ability to fulfill our commitment, EastWest was again ranked among the region’s well-established banks, according to The Asian Banker’s 500 Strongest Banks in Asia Pacific 2021 list. The recognition also further solidified our position as one of the strongest in the country.

MESSAGE FROM THE CHAIRMAN

Transforming for Our Future
If 2020 was the year we steeled our nerves because of the threats of COVID-19, 2021 was when we became hopeful that things would start turning around.

Higher vaccination coverage and less worry that the health system is getting overwhelmed all pointed to encouraging signs, prompting the government to ease mobility restrictions and allow businesses to open at full capacity in 2021. The increase in business activity, coupled with higher public spending and household consumption, enabled the Philippine economy to start its recovery from the 9.5% contraction in 2020 and post a 5.7% GDP growth in 2021. That sets the stage for its full recovery to bring us to 2019 GDP level this 2022.

Overall, the pandemic had been difficult to economic actors. The economic backlash resulted in job losses, business closures, and lower productivity. Fortunately, while much uncertainties remain and we continue to be watchful for potential new threats from the pandemic, we are starting to see the horizon better. We really hope this continues so that the country can recover almost 3 years of lost opportunities, and get back to its status as among the fastest growing economies in the region.

The pandemic also brought about the need for faster transformation. This call for transformation is very evident in banks like EastWest.

Transforming for our customers
Now that customer behavior has shifted to using digital payment and banking platforms, we expanded our digital capabilities and massively increased the number of our online banking users. Our customers who used to go to our stores now come to know and appreciate our online and mobile banking channels. As we transform customer experiences, we aim to create value by keeping our products and services consistently relevant to our customers’ ever evolving needs.

While this was largely anticipated, the pace of the digital evolution accelerated during the pandemic. It affirms our decision to keep our store count at 490, including our Rural Bank’s store-lites, and shift our investment priority to non-store distribution channels. Our aspiration is to accelerate our digitalization to provide more and more digital banking services.

Transforming for our people
Digital transformation, however, is just one aspect. While technology enables us to offer more seamless, convenient, and safe transactions, services have to be delivered in a distinct way that wins the hearts and minds of our customers. Our employees play a vital role in this aspect.

As such, we focus on building talent capacity, competency, and connection as fundamental MESSAGE FROM THE CHAIRMAN Transforming for Our Future elements to our sustainability. We ensure talents’ leadership and functional competencies are developed in time and employee engagement programs are in place. Our goal is to continuously deepen our bench of capable and energized talents who will drive our future growth as well as our subsidiaries’.

With several training programs available in the Bank, EastWestbankers will gain the right competencies, knowledge, and skills to be able to explain what products and services are available. In the end, our customers benefit from having products tailor-fit to their financial needs, as well as services delivered in a way that are efficient, satisfactory, and convenient. We are also making sure we have a succession of leaders in pursuit of the same vision and aspirations for EastWest.

COVID-19 has also accelerated behavioral changes in the way we work and live, sometimes also blurring the distinction. While working from home enables us to minimize the risk of exposure to the virus, it also affects employee productivity and mental health. No organization to date has yet perfected the work-from-home (WFH) situation, even organizations like EastWest that takes great pride in being one of the most WFH-ready local banks

We in EastWest continue our efforts to find the right balance between Office work and WFH for jobs where it is appropriate. We continue to refine our response to the question: How do we exactly do justice to the organization and our customers with the different combination of work arrangements? We need to seek ways to transform our ability to work under different working conditions and accordingly adopt the needed retooling, upskilling, and management practices.

Aside from the skillset, competencies and work arrangements of our EastWestbankers, we also have to be very mindful of their health and well-being so they, too can be future-ready for whatever situation the Bank may face. Vaccinations for COVID-19 were offered to all EastWestbankers, third-party hires, and employees’ family and friends. On top of the vaccination program, the Bank also provided wellness programs and health reminders. We are always looking for various ways to ensure the well-being of our employees because they are the lifeblood of our organization.

Transforming for our business
Any transformation will not be complete without improving the way we do things. We have to do away with convoluted processes and systems and harness technology to increase convenience and customer satisfaction. We are upgrading our core banking system to enable us to seize emerging opportunities as the economy recovers and as digital channels become the norm for our customers.

Organizational transformation also demands a change in mindset. We need to be even more innovative, so we have to be more focused on areas where we can really do very well. We are expanding our consumer offerings to remain a consumer-focused bank. In this period of rapid change, we also have to be more adaptive to new things if we are to make our business even more successful. To be adaptive is to focus on making our people more competent through the Bank’s RED – role clarity, environment and development framework, and our other competency development programs. Alongside these programs, we also ensure that we have efficient and seamless processes and systems that help make our employees become more productive. This way, we consistently enable employees in making our customers happy.

Transforming for the future
In embarking on all these transformations, our goal is simple: sustainability.

COVID-19 not only raised expectations for companies to drive positive change; it also made us focus on the long haul, which gets more challenging because of disruptions like the pandemic.

Looking at the bigger picture on a global standpoint, we see that the megatrends happening in the world in the next decade have not significantly changed despite the pandemic clearly derailing our short-term outlook. We are still able to map out our strategy as a sustainable business by keeping tabs on these trends that may impact our future:
1) The shift in the economic power to China and the so-called “E7” emerging markets from the G7 economies;
2) Climate change and resource scarcity;
3) Rapid advancement of technology;
4) Changes in demographics and social change; and
5) Rapid urbanization.

These five megatrends all have an impact on the Philippines given that:
1) We are geographically located near China and Indonesia (one of the E7);
2) We are the country most at risk from a climate crisis;
3) We are among the most active digital users in the world;
4) We have a young population that would propel our future growth; and
5) We have a rapidly growing urban population equivalent to nearly half of our total population.

To meet the demands of the future as a sustainable business, we need a competent workforce, the right systems and processes, products and services that are relevant to customers’ needs, and happy customers — it is as simple as that.

We want to be a successful, sustainable and future-ready organization that’s why we have to accelerate transformation. Some goals may take longer to achieve, but we will persevere and sustain with clarity of vision. When we become successful in building the kind of organization that has the endurance to last, then we will make the most difference to our customers, our employees, our shareholders, and to the larger society.

Because of COVID-19, we gained a shared understanding of a universal truth: We are all in this together.

On behalf of the Board of Directors of EastWest, thank you for your support during another extraordinary year. We look forward to the day when we can meet again in person and toast to new beginnings.

JONATHAN T. GOTIANUN
Chairman

Q&A WITH THE VICE CHAIRMAN & CEO

Ready for the Recovery, Ready for the Future
With the COVID-19 pandemic still raging in 2021, many businesses, including banks, remained under pressure due to declining business, incomes, rising client expectations, regulatory demand, and emerging competition from non-bank players, fintech, and telcos.

EastWest realized it had to strive for operational maturity to surmount these odds. Its operations must be grounded in the latest technology, armed with people who know how to use it to be future-ready. A lofty goal perhaps, but one that is worth aiming for, as CEO Antonio C. Moncupa Jr. bares in this interview.

How would you compare EastWest’s performance in 2021 vs. 2020?
Given the Philippine economy’s circumstances, I would consider the Bank’s performance acceptable.

Our net income stood at Php4.5 billion in 2021. This is lower than what we were accustomed to. In 2020, we were a positive outlier – we had the highest return on equity (ROE) at 12.3%. While we did not make it among the top 3 in terms of profitability — the first time in five years — in 2021, our ROE of 7.9% was still within the industry range. The important thing is that the balance sheet is intact and ready for growth, with its capital ratios the highest in years.

What external and internal factors significantly impacted the Bank’s 2021 performance?
It is the pandemic consequences that largely informed our performance. Industry bank lending grew by only 4.8% in 2021 from a year ago. And that was from a low base as 2020 saw a 0.9% decline from 2019. This is a dismal figure compared to typical industry pre-pandemic growth. The 2021 growth mainly was on business loans. Consumer loans declined by 5.9%. Since we have a much more significant proportion of consumer loans to total loans than any other bank, we ended with a decline in total loans.

Our divergent results from the rest of the banks is due to the difference in our balance sheet profile. In 2020, the industry ROE declined to around 6% while EastWest went up to 12.3%; in 2021, the industry went up to about 9% while the Bank was down to 7.9%. Consumer loans run-offs or maturities outpaced new booking while business loans increased.

In sum, these two — the tepid overall loans growth and our unique consumer-heavy balance sheet — impacted earnings. We expect the same trend in 2022. Consumer loans growth will be more tepid than business loans this year. However, in 2023, we should be back and would have regained a good part of the pandemic-induced loan volume decline. And with it, converge again with the industry trend and get closer to the above-industry ROE.

If 2020 was a game changer because of the COVID-19 global pandemic, what lessons did you learn and apply in 2021?
The pandemic affirmed that risk management pays off. When we do our business, we must always remember that whatever happens, we should put balance sheet resiliency above anything else. Profitability can fluctuate if unexpected events like COVID-19 happen. The important thing is to keep the ‘goose that lays the golden egg’ safe and intact.

Then there are lessons in business continuity. The pandemic also affirmed that we are in a technology-driven business. Those who can respond to this truth are more prepared to continue to provide banking services to their customers in emergencies. The pandemic showed that our once in a while boast that we have one of the better technology infrastructures has some truth to it. EastWest is one of the most work-from-home banks during the pandemic.

The pandemic also manifested the truth that we get the most from interacting with co-workers. Working from home is great but working with coworkers is better in accomplishing more. Synergies do exist.

These lessons – balancing productivity and practicality, will be very useful as we look into some form of hybrid work arrangement for jobs where it is appropriate. And there is a good number of it. We were looking into hybrid even before the pandemic to respond to the traffic situation and the resulting hassle and productivity-sapping long travel time.

How did you prepare your workforce to meet the renewed challenges from the Omicron variant?
To a great degree, Omicron is anti-climactic. Somehow, we knew it will be benign as the willing, which is almost all, have been vaccinated either through Filvax, the Filinvest Group vaccination program, or through the LGUs. Also, by the time it got to us, we had the benefit of experiences from other jurisdictions. So, we knew that it is a more benign form than earlier variants. But nevertheless, the speed of its spread was a concern.

While EastWestbankers are safe, we had to implement our store contingency plans. Due to the high level of infection, we activated the “buddy store” plan where customers of stores that need to be closed to avoid further community infection are assigned to their ‘buddy’ store. We also identified ‘must open stores,’ or those most needed by our customers, and redeployed personnel from other stores. In addition, our stores did a lot of innovation to keep operations going.

This year’s theme for the Filinvest Group is “Accelerating Transformation.” To what extent would you say EastWest has been doing this?
You must be talking about digital. The Bank has recognized that transformation is the call of the hour. Either you get into it or be left behind. Even before the pandemic, it was clear that the digital march was unstoppable. The pandemic made it clearer and more urgent.

We realize that we need to make bigger strides. While we have our existing digital offerings, we know that we need something better to realize our goal to be an even more relevant bank. We have been working on significant digital initiatives that should put EastWest on a competitive digital footing. We are also updating more frequently our digital and technology roadmap. We need to make sure our offerings are attuned to the needs of our customers and are future-ready.

These are very technical matters – open architecture, APIs, cloud-ready, etc., but bottom line, it has to be more efficient, competitive in product features, convenient, and safe for our customers. These things take time to build and will be an evolutionary process, not a one-shot ‘get it done with’ activity. We should start to roll out the enhanced platform offerings before the year ends.

How do you measure the impact of your transformation?
The only real measure of what we do is the vote of customers. We say customers are voting for EastWest when we are getting more customers, doing more transactions, and handling business volumes at a faster pace than our competitors. If you are not getting these results, you are not doing things right.

We recognize that this will not be a one-time election. This is the province of innovation and adaptation. We know we will be in a constant campaign mode. It will be a continuous fine-tuning of our platforms and product and services offerings, bolting in new capabilities, and adopting new use cases. We know that we need to fight for every vote in these fast-paced digital times. And we will.

What do you think will be the next wave in terms of digital?
The direction, I think, is to make banking less obtrusive. This concept of embedded finance, where banking is seamlessly integrated into non-financial services like in ordinary apps, will likely land on our shores –be it taxi rides or investment platforms. E-commerce will expand, and with it, banking and payment services. There is also this open banking where customers will have full control of their data and direct it where to go.

These developments will revolutionize banking and could upend the status quo. It should also democratize banking. It will be good for customers as it intensifies competition. It will be more challenging for banks. The game will shift to who could offer better value and more convenience to customers. Currently, it is not easy to see the differences among banks. This time, it will be for real. Technology will make a big difference.

While we have our eyes set on the future, we also need to accelerate transforming the usual and common day-to-day banking and payments to digital. There is still a lot of work on loans and investments. We are indeed living in very interesting and exciting digital times.

What is your outlook for the Philippine economy in 2022?
For EastWest? We are increasingly becoming more confident that we have seen the worst of the pandemic, and we are now at the tail end of this crisis. The new normal, where we learn to live with the virus, is upon us. This is very positive for the Philippine economy. The economy should recover its pre-pandemic output within the year. And where the economy goes, so does banking. This is a big relief for everyone. All economic actors can go back to the business of business. The banking industry is also getting out of this pandemic even stronger, as seen in the healthy CET 1 capital ratio though earnings have suffered in the two pandemic years. Earnings can be recovered for as long as balance sheets remain healthy. And fortunately, it is.

The same goes for EastWest. We are coming out from the pandemic with our balance sheet intact and resilient. CET 1 ratio is much higher than the pre-pandemic level. However, the earning power of the balance sheet is diminished. Two years of lessthan-stellar economy-wide loan growth and loan run-offs means lower loan levels and lower income. Unfortunately, this is more pronounced for EastWest, given its predisposition to consumer finance. The Bank saw its loan levels going lower than the industry. It’s okay. We can grow again as we had in the past.

This means we in EastWest need to focus more on recovery and growth and get back to executing our plan to double our balance sheet in 5 years. Our projections indicate that 2022 will be a recovery year and we should be back to the pre-pandemic income level in 2023 as there is a lag between loan buildup and its impact on revenues and profits. We also expect the country’s economic growth to be more pronounced in the second half. Overall, we expect revenue and profits to be low in the early part of 2022, particularly the first quarter, and steadily gain momentum as the year progresses. We should show significant improvement in the 4th quarter of 2022.

What do you think will enable EastWest to be future-ready so it can meet the challenges beyond this pandemic?
Pandemic or no pandemic, we see two things that are critical in retail banking – growing to scale and risk management. It is not just any growth. It is a wellconceived growth that optimizes returns appropriate to the defined risk tolerance of the Bank. You need scale to be efficient. You need sound risk management to make sure you can survive any challenging situation like a pandemic or even a financial crisis. It is growth disciplined by risk management. It is risk-conscious growth.

Once the plans are set following these constructs, the critical factor is execution. We in EastWest believe that this execution game will be won or lost on how effective we are in harnessing the energy and talent of EastWestbankers. The Bank can procure the necessary tools and infrastructure it needs. But it’s not an issue of resources. The issue is identifying where to go, what is required to get there, and how to get there fast. These entail having the right leaders with the vision and deep understanding of their business and the evolving environmental changes. And how they could mobilize their units, which depends on how they guide the capability building of their organizations, instill a shared sense of purpose, and adapt the behavioral norms we all agreed to.

If we, as management, are up to the challenge by setting the execution direction effectively and taking care of our people, we should be able to face any challenge with calmness and confidence.

 

Transforming for Our Customers
Transforming for Our People & Society
Transforming for Our Business

Sustainability at EastWest

Corporate Governance
Capital Adequacy Reconciliation
Risk Exposure

2021 EastWest Annual and Sustainability Report