The central bank will maintain the 2% per month or 24% per year cap on credit card rates and fees as cardholders still have to deal with restoring income lost during the pandemic.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, currently in Spain for an investor briefing, said Tuesday (31 May) that the Monetary Board’s decision to proceed with the cap’s implementation “will continue to burden investors financially.” consumers through affordable credit card pricing” in the context of the current Covid-19 health crisis.
“It will also allow BSP to assess the impact of improving macroeconomic fundamentals and easing mobility restrictions on the performance of the credit card industry,” Diokno reiterated.
In addition to capping credit card rates and fees, the circular also imposes a limit on the additional monthly rates that credit card issuers can charge on installment loans, which is a maximum rate of 1%. As for the maximum processing fee on the use of credit card cash advances, it also remains at P200 per transaction.
Based on the latest BSP data at the end of March this year, credit card receivables or loans increased by 11.5% to 446.16 billion pesos compared to the same period in 2021 of 400, 34 billion pesos.
The BSP noted that in the second half of 2021, demand for credit cards has “moderated”, with consumers opting for more alternative digital products instead.
Still, the BSP said the number of credit cards issued and in circulation rose a small 0.3% to 10.3 million. Meanwhile, monthly card billings increased by 33.9% year-on-year to reach 100.6 billion pesos at the end of December 2021.
“Banks/credit card issuers have also been able to maintain the asset quality of their credit card portfolios through intensified corrective and turnaround actions,” the BSP said.
Last year, the credit card industry’s non-performing loan (NPL) ratio was 6.8%, down from 8.9% in 2020. The industry’s NPL coverage ratio was 109 .5% at the end of December 2021.
The BSP said that “in addition to demonstrating prudent lending standards”, banks and credit card issuers posted higher net income on their credit card operations of 18.5 billion pesos in 2021. compared to a year ago. “This was, however, still below the levels recorded by the industry before the pandemic,” the BSP added.
To ensure affordable credit card pricing, the BSP reviews credit card rates and fees every six months.
Prior to the imposition of the cap in November 2020, the average maximum rate banks charged credit card holders was 36% per annum, while credit card cash advances were charged from P500 upwards.
The central bank said that for 2022, it expects the credit card industry to “further reduce operating costs through digital transformation and process improvements, while maintaining prudent lending”.
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