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Credit Card Firms Endorse Fee Cap but Point to Profit Risk
Ian Nicolas Cigaral (Philstar.com) – October 12, 2020 – 1:44 pm
MANILA, Philippines – Credit card firms backed the central bank’s decision to limit the interest and penalties they charge, but cautioned that by doing so they risk hurting their already financially strained balance sheets.
“CCAP, along with Philippine banks and financial institutions, continue to support provisions for credit card holders, especially during this uncertain time,” said Alex Ilagan, executive director of the Credit Card Association of the Philippines, in a response. emailed to inquiries. last week.
“However, the 2% interest rate cap may further compress banks’ interest margins, which are already affected by high levels of credit card delinquency and the volume of card usage. depressed credit, “added Ilagan.
The cap will apply to direct payments and is scheduled to go into effect on November 3. For installment payments, a lower monthly limit of 1% will be imposed. Both decisions were intended to provide respite for borrowers whose ability to pay their obligations has likely been affected by the pandemic.
On the credit card companies’ side, Chuchi Fonacier, deputy governor of Bangko Sentral ng Pilipinas (BSP), said that financial losses from restricting credit card charges “are not expected to significantly affect (the) profitability of credit cards. credit card issuers “.
“The caps are not a major change in market rates. It generally approximates the average interest rates currently imposed by the major credit card players, ”he said in a text message.
Citing data from the BSP, Fonacier said that even during the health crisis, banks’ net interest margin, a measure of profits, rose to 3.9% in the first half of this year, up from 3.6% in the same. period of the previous year. That said, he added that the impending cap on credit card charges will be reviewed “every 6 months” to assess its “reasonableness.”
“We expect credit card companies to reevaluate their business strategies and simplify operations so they can continue to serve their customers and their niche through affordable credit card prices under the new affordable deals,” said Fonacier.
Since February, the BSP has pushed benchmark interest rates, on which lenders base their loan charges, to record lows in an attempt to encourage borrowers to get credit and boost economic activity. Meanwhile, banks, many of which are credit card issuers, have been more reluctant to lend during these tough times for fear of having a hard time getting their money back.
Such a dreaded scenario is already happening. CCAP data showed that from just 3.96% at the end of 2019, bad debt charges increased almost threefold to 10.5% in August. Separate data showed that credit card bills also plunged 27% year-on-year to P415 million in July.
“The high unemployment rate, as well as the loss of livelihoods for the self-employed and small business owners, affected the credit card industry,” Ilagan said in a statement last week.
For his part, Fonacier said the upcoming Christmas season, when consumer demand generally picks up, is expected to increase lending, including credit card accounts receivable. “The low interest rate environment also gives credit card issuers some leeway to adjust credit card rates due to lower financing costs,” he said.
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