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Credit card delinquencies soar ahead of the anticipated holiday binge
Ian Nicolas Cigaral (Philstar.com) – December 14, 2020 – 5:09 pm
MANILA, Philippines – The proportion of credit card holders who cannot pay their bills on time increases as the holiday season approaches, when consumers are expected to spend more and swipe their cards more frequently.
The delinquency rate, represented by unpaid credit card fees on the total bill, increased to 11.5% as of September from 3.96% at the end of 2019, the Credit Card Association of the Philippines (CCAP) said in a statement.
The number was also higher than the 10.5% recorded in August, the data showed.
Credit card delinquency occurs when the cardholder has a poor payment history and often pays long-overdue bills. The credit limit of delinquent borrowers is also often at the maximum, which can be a sign of limited income.
Alex Ilagan, president of the industry group, said unpaid credit card bills were expected, especially with more people unemployed. “This was mainly due to loss of income and significant unforeseen expenses, as well as blockages that resulted in travel restrictions and difficulties in making payments on time,” it said in a statement.
While the unemployment rate fell to 8.5% in October from an all-time high of 17.5% in July, the central bank itself expected that defaulted bank loans would rise slowly just as grace periods end and damage from the pandemic in the form of closed businesses becomes more evident. The broader non-performing loan ratio across all banks rose to 3.69% in October.
The problem will only be exacerbated. Chuchi Fonacier, deputy governor of the central bank, said last month that lending could increase as the cap on credit card charges of 2% per year is applied in November. CCAP said the cap may trigger more financial problems for its members, but the penalties against Fonacier cards are not completely removed and therefore they should maintain some cash flows to banks.
More generally, the Bangko Sentral ng Pilipinas (BSP) last Friday opened up more opportunities for banks to make loans by setting another cap, this time on loans that can be extended to companies that qualify as alternative fulfillment of reserve requirements.
Under the new rule, lenders can only qualify as reserve loans of up to P300 billion in loans to micro, small and medium-sized businesses and P425 billion to large businesses. These loans inevitably include credit card receivables. “Ultimately, a credit card can be a convenient and reliable payment tool and line of credit available for emergencies,” said CCAP.
At first glance, the limits seem out of place, as banks are nowhere near the limits as of November 12, when they had extended P123.6 billion in loans to MSMEs and P29.5 billion to larger companies. .
BSP Governor Benjamin Diokno said limits are not set to protect banks’ balance sheets by limiting their ability to take risks. “The idea is to encourage competition among banks to make loans to MSMEs and large companies as needed,” he said in a Viber message last Friday.
“We want to point out to the banks that this monetary accommodative measure is not unlimited,” he added.
On the consumer side, Ilagan said they are interested in increasing their bills on time. “Some major companies check the credit history of their job applicants. In some banks, bad credit behavior can also affect a possible promotion to higher positions, ”he said.
“In the future, other non-financial institutions that provide lines of credit for the use of their services, such as a postpaid mobile phone connection, may also begin accessing credit history before providing service to a new customer,” he added.
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