The Bangko Sentral ng Pilipinas’ (BSP) pandemic relief measure that allowed credit cardholders to pay no higher than two percent interest rate per month is up for review this month, according to an official.
“The BSP is due to review the credit card interest cap of two percent this month. Hence, we will elevate this matter to the Monetary Board’s consideration within this month,” said BSP Deputy Governor Chuchi G. Fonacier in a text message on Monday, Oct. 17.
Whether or not the BSP will lift or maintain the two-percent ceiling per month or 24 percent per year limit on credit card rates and charges since credit cardholders are still coping with restoring lost income during the pandemic is up to the seven-member Monetary Board to decide. The BSP’s policy-making arm, the Monetary Board, is chaired by central bank Governor Felipe M. Medalla.
Medalla, who is still in Washington DC for the annual International Monetary Fund-World Bank spring meetings, has acknowledged in a recorded message during the Credit Card Association of the Philippines (CCAP) event on Monday that credit card receivables have started to post double-digit growth in 2022, reaching 20.4 percent year-on-year in July.
Medalla also noted that from a peak of 10.1 percent outstanding non-performing loan (NPL) ratio in November 2020, the credit card industry was able to manage its quality of credit and card receivables. Banks’ credit card NPL ratio has eased to 5.7 percent as of end-July, a rate that Medalla said “brings us close to prepandemic levels.”
Meantime, in the same CCAP event on Oct. 17, Fonacier said credit card financing is “slowly gaining momentum” as more economic activities resume.
She noted the resilience of the credit card industry in the double-digit growth of credit card billings and receivables and in the improvement credit card portfolios.
“Credit card billings grew 41.4 percent year-on-year in June 2022 compared to 29.5 percent growth in the same period last year. Similarly, credit card receivables rose by 23.7 percent YOY (year-on-year), higher than the 2.2 percent year-on-year contraction registered a year ago. With demand for digital financial products increasing, there is still a lot of scope for growth in the credit card industry,” said Fonacier.
As for the impending review of the credit card rate ceiling, which is a measure that BSP reviews every six months, Fonacier said that “apart from keeping finance charges within the BSP’s ceilings on credit card transactions, the industry led the way in restructuring credit card receivables.”
Fonacier said majority of restructured consumer loans were credit card receivables amounting to P6 billion as of end-July, which is about 56.3 percent of the total restructured loans during the period.
“We likewise appreciate the active engagement of CCAP in the BSP’s initiatives, particularly in the regular review of the credit card ceilings. The inputs and feedback of the credit card industry form part of the BSP’s holistic assessment of the appropriateness of the credit card ceilings,” said Fonacier.
Both Medalla and Fonacier expressed the BSP’s commitment in providing an enabling regulatory environment to ensure the continued safety and soundness of the financial system and protection of financial consumers.
Medalla called on CCAP to continue to protect consumers and support the BSP via the Financial Products and Services Consumer Protection Act (FCPA).
Similar with CCAP, the BSP also supported the SIM registration law to fight against fraudsters and “deter the proliferation of SIM card aided crimes such as bank fraud and text scams,” said the BSP chief.
CCAP chairman, Rolando P. Ebreo, vowed on Monday that the group will continue to work with the BSP in helping credit cardholders cope with the recovering economy amid high inflation and a depreciating peso.
“We continue to provide assistance to customers facing hardships. (CCAP) engages with other government agencies and other companies and associations to expand the reach and power of credit cards,” he said.
Meanwhile, Bankers Association of the Philippines (BAP) president Antonio C. Moncupa, who is also CEO of East West Banking Corp., said it will support CCAP “(with) this thing called the interest rate cap.”
“Although we understand this as some trade off for the timely, bold and responsive monetary loosening policy by the Bangko Sentral, that alleviated the pain for the banking industry and helped the country from a worse economic meltdown, it was and continue to be painful for the credit card citizens of CCAP,” said Moncupa.
“But, rest assure that the BAP has this on its advocacy agenda. We are with your strong arguments that you prepared and presented when this issue was in the works,” he told CCAP members.
“We share in your belief that market forces are the best arbiter to allocate credit and set the right prices especially now that interest rates are on the rise and the benefits of the loose monetary policy is reversing as financial condition tighten and is expected to continue to tighten in the days ahead,” said Moncupa. Since May this year, following US Federal Reserve actions, the BSP has raised its key rate by a cumulative 225 basis points or from a flat two percent to 4.25 percent by Sept. 22 amid high inflation and a depreciated local currency.
Despite Moncupa’s statement to the CCAP, the BSP has not received any requests from any sectors on the removal of the relief measure which helped consumers pay just two percent monthly interest charges on credit card loans.
Consumer groups and some politicians however already appealed on the BSP extension of the relief measure as majority of Filipinos are still struggling from the adverse effects of the pandemic.
The decision of the BSP’s Monetary Board to continue implementing the cap will continue to help ease the financial burden of consumers through affordable credit card pricing.
The Monetary Board first approved to maintain the ceilings on credit card transactions under Circular No. 1098 on Sept. 24, 2020, but implemented it only on November of the same year.
Besides the ceiling on credit card rates and charges, the circular also imposes a limit on the monthly add-on rates that credit card issuers can charge on installment loans, which is a maximum rate of one percent. As for the maximum processing fee on the availment of credit card cash advances, this also remains at P200 per transaction.
Before the imposition of the ceiling in November 2020, the average maximum rate that banks are charging credit cardholders was 36 percent per year while credit card cash advances were charged starting at P500.
The central bank said that for 2022, they expect the credit card industry to “further reduce operating costs through digital transformation and process improvements as well as maintain prudent lending standards.”