BSP acts to clean up credit card receivables

Confronted with the deteriorating condition of the credit card industry, the Bangko Sentral ng Pilipinas (BSP) said it plans to revise the aging structure for credit card receivables to tighten up on borrowers and head off a possible crisis.

Once approved by the Monetary Board, the restructuring would allow banks and credit card companies to write off a large portion of their receivables and clean up their credit card portfolio.

The BSP is in discussion with banks and credit card companies to explore the possibility of adjusting the aging structure used by credit card issuers.

BSP Deputy Governor Alberto Reyes said the adjustment would bring the local practice up to par with international standards that have been tailor-made specifically for credit cards.

According to Reyes, the country’s aging structure for credit card receivables were based on the structure applied on regular loan accounts of banks. "We patterned it to installment receivables," he said.

The changes, Reyes pointed out, would only acknowledge the differences between the two and incorporate the peculiarities of credit card loans.

"We have to determine the generally acceptable reckoning for past due receivables and definitely, there will be an aging formula," Reyes said. "This will help clean up the receivables of the industry."

Based on generally accepted international practices, Reyes said credit card receivables that have not been collected beyond 180 days were written off immediately.

This means that banks and credit card companies have to make provisions for past due receivables, but it would also mean that credit card holders could no longer dilly dally on payments.

However, Reyes admitted that the BSP has to consider the complexities that now prevail in the credit card industry and factor these into the policy guidelines under consideration.

"One thing we would have to consider is the common practice of banks these days to allow, say, 12-month installments that allow credit card borrowers to service their debts in small increments," he said.

On the other hand, Reyes said the BSP was still studying the proposal of credit card companies to lower the three- percent interest charge to attract more subscribers despite efforts to impose more stringent requirements on the issuance of new cards.

Alarmed by the increase in delinquent credit card accounts, the BSP had began requiring credit card companies to screen cardholders and set the credit limit based on their net take-home pay.

Reyes told reporters that the Credit Card Association had reported having complied with the new BSP requirements but the industry was also studying the possibility of lowering interest and penalty charges on card borrowing.

According to Reyes, credit card companies wanted to lower the interest rate in an attempt to make the service cheaper for existing cardholders.

At present, cardholders paying on time but on installment basis are charged with a three- percent interest on their principal. If they are overdue, they pay penalty charges.

BSP Governor Rafael Buenaventura has been pressing for a reduction in interest charges on credit card borrowings.