East West Bancorp’s long-term issuer default rating upgraded to ’BBB+’ by Fitch

Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) for East West Bancorp , Inc. (NASDAQ:EWBC) and its operating subsidiary, East West Bank, from ’BBB’ to ’BBB+’. The rating agency also upgraded the Viability Ratings of both entities to ’bbb+’ from ’bbb’ and maintained the short-term IDRs at ’F2’. The outlook for these ratings is stable.

The upgrade reflects East West Bancorp’s strong earnings power, unique business profile, and robust capital levels. Despite potential risks due to cross-border business lines and loan concentration, the company has maintained profitability levels above its peers, even in a higher tariff environment.

East West Bancorp’s management has shown a consistent ability to navigate geopolitical uncertainties while maintaining profitability and capital levels. The bank’s high CET1 ratios provide flexibility for handling unexpected high-loss situations.

The bank’s unique position as a Chinese-American affinity bank offers a stable core funding base and lending opportunities, as well as increased opportunities for cross-border growth. Despite this, its subsidiary in China and Hong Kong branch together accounted for only 6% of total consolidated assets and 4% of total consolidated revenue through the end of 2024.

The bank’s risk profile has been constrained by loan concentration in California commercial real estate, but this has been offset by robust underwriting and a proactive approach to assessing loan portfolio credit quality. Fitch expects loan growth to remain in the mid- to low-single digits through 2025.

East West Bancorp’s impaired loans-to-gross loans ratio increased to 69 basis points through the end of 2024 from 40 basis points at the end of 2023, but it remains below the peer median. The net charge-offs (NCO) ratio rose to 26 basis points as of the end of 2024 from 9 basis points at the end of 2023. However, Fitch considers East West Bancorp’s robust capital levels capable of absorbing above-peer levels of NCOs.

The bank continues to have a strong earnings profile, with an operating profit-to-risk-weighted assets (RWAs) ratio of approximately 2.7% through the end of 2024. Over time, the bank has proven more profitable than higher-rated peers.

East West Bancorp’s common equity Tier 1 (CET1) ratio increased to 14.3% as of the end of 2024 from 13.3% at the end of 2023 and continues to be well above regulatory minimums and those of peers. Fitch expects East West Bancorp will repurchase stock in 2025 but will continue to maintain its CET1 ratio at the higher end of the peer group.

As interest rates have remained elevated, East West Bancorp’s deposit mix has continued to shift to time deposits, with time deposits increasing 29% year-over-year as of the end of 2024. Fitch expects this trend to moderate slightly in 2025 due to rate cuts in the second half of 2024 and additional rate cuts in 2025.

The bank’s loans-to-deposits (LTD) ratio declined to 85% as of the end of 2024 from 93% as of the end of 2023 due to muted loan growth. Fitch expects the LTD ratio to increase slightly in 2025 given moderate loan growth expectations but to remain at levels consistent with its rating.

The Viability Rating (VR) is equalized with the Long-Term IDR of the operating bank, reflecting its role as the bank holding company, which is mandated in the U.S. to be a source of strength for bank subsidiaries.

Factors that could lead to a negative rating action or downgrade include disruptions in economic or political relations with China that result in sustained periods of declines in profitability, a significant deterioration in asset quality, or a decline in the CET1 ratio such that it dips below 12% and remains there for multiple quarters.

Positive rating momentum could develop over time through increased geographic diversification and revenue diversification, provided this diversification is achieved prudently and without significantly increasing the bank’s risk appetite, while continuing to successfully navigate economic and geopolitical uncertainty.

East West Bancorp’s long-term, uninsured deposits are rated one notch higher than the bank’s Long-Term IDR, as U.S. uninsured deposits benefit from depositor preference. The short-term uninsured deposits are rated ’F2’ based on the bank’s long-term deposit rating and Fitch’s assessment of its funding and liquidity profile.

The Government Support Rating (GSR) of ’ns’ reflects Fitch’s view that senior creditors cannot rely on receiving full extraordinary support from the sovereign if East West Bancorp and East West Bank becomes non-viable. The GSR would be sensitive to any change in U.S. sovereign support, which Fitch believes is unlikely.

The Asset Quality score of ’bbb+’ has been assigned lower than the implied score of ’aa’ due to negative adjustments for Concentrations and Historical & Future Metrics. The Capitalization and Leverage score of ’bbb+’ has been assigned lower than the implied score of ’a’ due to a negative adjustment for Capital Flexibility. The Funding and Liquidity score of ’bbb+’ has been assigned lower than the implied score of ’a’ due to a negative adjustment for Deposit Structure.

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