East West Banking Corp. (EastWest Bank) expects credit costs to remain elevated for the rest of the year, citing challenging economic conditions and the continued maturation of its consumer loan book.

The bank, the banking arm of the Gotianun family's Filinvest Development Corp., has built its franchise around consumer lending, which makes credit costs — the provisions set aside against potential loan losses — a central swing factor for its earnings.

"The current macroeconomic environment is affected by not just global, but also, more importantly, domestic factors… We're also going through a seasoning process, having grown our unsecured book over the last three to four years. And with that, we're also expecting credit costs to remain elevated as newer accounts season," EastWest Bank Chief Executive Officer Jerry G. Ngo said during the Philippine Stock Exchange's Investor Day, held virtually on Monday.

"We expect better visibility as the portfolio matures and the new models are validated, with credit costs likely to normalize gradually thereafter," he added.

Seasoning is a familiar dynamic in consumer lending, where loss rates on newly originated loans tend to climb as accounts age before stabilizing. Credit quality in the consumer segment has also drawn attention across the Philippine banking industry, where credit card and other unsecured exposures expanded rapidly in the post-pandemic period.

Provisioning at the bank, which was increased in anticipation of potential loan losses, remains ample at present, although Mr. Ngo noted this could change depending on economic conditions.

He also stressed that pressures on the loan portfolio are confined to particular segments rather than being widespread. "A significant portion of our fast-growing credit card portfolio is still seasoning, but the pressure is not broad-based, but basically across certain segments and as well as particular situations."

"Portfolio seasoning and a more challenging operating environment have affected near-term credit performance, while updated forward-looking assumptions have also increased expected credit losses," Mr. Ngo said. "Our objective, and I want to be very clear about this, is not to withdraw from consumer lending, which remains out core business, but to rebalance growth towards segments that can generate more sustainable risk-adjusted returns."

The bank has been carrying out a collections transformation that began last year, encompassing tightened origination standards; active de-risking of the existing portfolio, such as reducing credit limits for accounts exhibiting higher risk signals; a revamp of collections through stronger capacity, intervention, and customer engagement; strengthened recoveries and remediation; and the maintenance of forward-looking buffers.

These measures have already produced results, with the bank recording improvements in first-payment defaults on its unsecured portfolio and plateauing delinquencies in more challenged sectors.

"The expected integration of additional credit information data should also strengthen our customer assessment, underwriting, and portfolio monitoring," Mr. Ngo added.

In the Philippines, lenders can also draw on the Credit Information Corp., the centralized credit registry created under the Credit Information System Act of 2008, which gives banks a fuller view of a borrower's obligations across institutions.

To drive profit growth, EastWest Bank will continue to rely on its consumer segment while also working to deepen its wealth management and other fee-based businesses. The bank expects consumer loans to keep growing by high single digits to low teens this year, supported by an expansion of its secured business through mortgage and auto loans, as well as a push into the small and medium enterprise (SME) segment.

"We are scaling our digital ecosystems and embedded banking partnerships to reach and serve more customers than ever before. As we move into this next phase, we want our growth to come from more engines, more diversified, more balanced across lending, customer relationships, making the franchise more resilient and less dependent on any single driver while preserving our core identity as a consumer-focused bank," Mr. Ngo said.

As of the first half, EastWest Bank's loan book consisted of secured loans, including auto and mortgage products, alongside unsecured loans covering credit cards and personal loans. Teacher salary loans via payroll deduction, which carry a relatively low risk profile, have grown to account for around 25% of the total portfolio.

The bank booked a net income of P3.4 billion for the first half. Management did not give a specific timeline for when credit costs would normalize, leaving delinquency and provisioning levels in the coming quarters as the key indicators of progress.

Its shares closed at P11.06 apiece on Tuesday, up by four centavos or 0.36%. — A.M.C. Sy