BSP to review 2% cap on credit cards this month – Manila Bulletin
The Bangko Sentral ng Pilipinas (BSP) pandemic relief measure that allowed credit card holders to pay no more than 2% interest rate per month is to be reviewed this month, an official said.
“The BSP is to revise the two percent credit card interest cap this month. Therefore, we will bring this matter to the attention of the Monetary Board during this month,” BSP Deputy Governor Chuchi G. Fonacier said in a text message on Monday, October 17.
Whether or not the BSP will lift the 2% per month cap or the 24% per annum limit on credit card rates and fees as credit cardholders still face revenue restoration lost during the pandemic, it is to the seven-member monetary council. decide. The BSP’s decision-making arm, the Monetary Council, is chaired by central bank governor Felipe M. Medalla.
Medalla, who is still in Washington D.C. for the annual spring meetings of the International Monetary Fund and the World Bank, acknowledged in a recorded message at the Credit Card Association of the Philippines (CCAP) event on Monday that credit card receivables began posting double-digit 10-digit growth in 2022, reaching 20.4% year-on-year in July.
Medalla also noted that from a peak of 10.1% in the outstanding non-performing loan (NPL) ratio in November 2020, the credit card industry has been able to manage the quality of its receivables. credit and cards. The banks’ credit card NPL ratio fell to 5.7% at the end of July, a rate that Medalla said “brings us closer to pre-pandemic levels.”
Meanwhile, at the same CCAP event on Oct. 17, Fonacier said credit card financing is “slowly gaining momentum” as economic activity picks up.
She noted the resilience of the credit card industry in double-digit growth in credit card billings and receivables and in improving credit card portfolios.
“Credit card billings grew 41.4% year-over-year in June 2022, compared to growth of 29.5% in the same period last year. Similarly, card receivables increased by 23.7% YoY (YOY), which is greater than the 2.2% YoY contraction recorded a year ago.With the increase in demand for financial products digital, there is still a lot of room for growth in the credit card industry,” said Fonacier.
Regarding the impending review of the credit card rate cap, which is a measure that BSP reviews every six months, Fonacier stated that “in addition to keeping finance charges within BSP’s caps on transactions by credit card, the industry has led the way in the restructuring of credit cards. debts”.
Fonacier said the majority of restructured consumer loans were credit card receivables amounting to P6 billion at the end of July, or about 56.3% of total loans restructured during the period.
“We also appreciate CCAP’s active engagement in BSP initiatives, including the regular review of credit card limits. Contributions and comments from the credit card industry are part of BSP’s overall assessment of the appropriateness of credit card caps,” Fonacier said.
Both Medalla and Fonacier expressed the BSP’s commitment to providing a conducive regulatory environment to ensure the continued safety and soundness of the financial system and the protection of financial consumers.
Medalla called on CCAP to continue to protect consumers and support BSP through the Financial Products and Services Consumer Protection Act (FCPA).
Similar to the CCAP, the BSP also supported the SIM card registration law to fight fraudsters and “deter the proliferation of SIM-assisted crimes such as bank fraud and SMS scams”, said the head of BSP.
CCAP President Rolando P. Ebreo pledged Monday that the group would continue to work with BSP to help credit cardholders weather the economic recovery amid high inflation and a depreciating peso.
“We continue to provide assistance to customers in difficulty. (CCAP) is working with other government agencies and other businesses 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 he would support CCAP “(with) this thing called the interest rate ceiling”.
“While we understand this as a trade-off for Bangko Sentral’s timely, bold and responsive monetary easing policy, which has eased pain in the banking sector and helped the country emerge from a worse economic meltdown, it has been and continues to be painful for CCAP credit card citizens,” Moncupa said.
“But, rest assured, the BAP has this in its advocacy agenda. We agree with your strong arguments that you prepared and presented when this issue was in the works,” he told CCSI members.
“We share your belief that market forces are the best arbiter for allocating credit and setting the right prices, especially now that interest rates are rising and the benefits of accommodative monetary policy are reversing as the financial situation is tightening and is expected to continue to tighten in the coming days,” Moncupa said. Since May this year, following the actions of the US Federal Reserve, the BSP has raised its policy rate by a cumulative 225 basis points or a fixed rate of 2% to 4.25% by September 22 amid high inflation and local currency depreciation.
Despite Moncupa’s statement to CCAP, BSP has not received any requests from any industry regarding the removal of the relief measure that helped consumers pay only 2% monthly interest charges on credit card loans. credit.
Consumer groups and some politicians, however, have already appealed for BSP’s extension of the relief measure, as the majority of Filipinos are still battling the adverse effects of the pandemic.
The BSP Monetary Board’s decision to proceed with the implementation of the cap will continue to help ease the financial burden on consumers through affordable credit card pricing.
The Monetary Council first approved the maintenance of the caps on credit card transactions under Circular No. 1098 of September 24, 2020, but did not implement it until November of the same year.
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.
Before the cap was imposed 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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