Credit card use seen to recover

AN industry group is anticipating credit card loans to gain some recovery this year as more business activities resume after government moves to ease lockdown measures amid increasing number of Covid cases.

Credit Card Association of the Philippines (CCAP) Executive Director Alex B. Ilagan told the BusinessMirror that the growth in credit card borrowings this year, however, will not be the same yet prior to the pandemic.

“As the economy starts to open up, we also expect to see some recovery in the number of credit cards being issued, as well as, usage volume, albeit lower than the double digit growth rates seen in prior years,” Ilagan explained.

He told the BusinessMirror that credit card loans slipped by over 8 percent last year compared to 2019 because of the contraction in the number of cards and lower card usage volume. The CCAP blamed these to the economic slowdown after government ordered the closure of borders and restricted mobility.

According to latest data from Bangko Sentral ng Pilipinas (BSP), credit card receivables stood at P405.677 billion as of end-September last year. That figure is 2.21-percent lower than the year-on-year figure of P414.878 billion. In 2019, the banking industry’s credit card borrowings stood at P456.735 billion.

The end-September record represents 3.94 percent of the total loan portfolio of the banking system in the said period.

Of this figure, bulk or P405.576 billion was extended by the universal and commercial banks. The balance, P101 million, was provided by the thrift banks.

Nonperforming credit card loans for the period reached P30.385 billion, which is 7.49 percent of the total credit card receivables and 0.30 percent of the total loan portfolio.

As of end-December 2020, CCAP noted that the average industry default rate improved to 8.4 percent from 11.5 percent in September last year.

“This can be attributed to various risk mitigation measures and debt forbearance programs implemented by credit card issuers in the latter part of the year,” Ilagan explained.

Under Republic Act (RA) 11494 or “Bayanihan to Recover as One (Baro) Act,” the government implemented a 60-day debt moratorium for loan payments falling due until end-December of last year.

Credit card delinquency happens when credit cardholders have poor payment history because they settle their loans after the due date, CCAP explained. In addition, these cardholders usually maximize the balance of their credit lines due to constraint cash flows.

Ilagan, in an earlier statement, said that credit card loan defaults were “caused primarily by loss of income and unforeseen major expenses, as well as the lockdowns which resulted in travel restrictions and difficulties in making payments on time.”

The closure of businesses ensued, joblessness to surge and caused major concerns over revenue channels of many households.

Effective November 3 last year, all credit card transactions were subject to an annual interest rate ceiling of 24 percent, which is lower than the prior 47-percent average. The policy aims to reduce borrowing costs to make financing more affordable to clients.