Credit card delinquency soars ahead of anticipated holiday binge
MANILA, Philippines (UPDATE 1 5:42 p.m., Dec. 14) — The proportion of credit cardholders unable to settle their bills on time is on the rise approaching the holiday season when consumers are expected to spend more and swipe their cards more often.
The delinquency rate, represented by unpaid credit card dues over the total bill, surged to 11.5% as of September from 4.36% in end-2019, the Credit Card Association of the Philippines (CCAP) said in a statement.
The number was also up from 10.5% recorded in August, data showed.
Credit card delinquency occurs when a cardholder has a poor payment history and frequently pays bills way past due date. The credit limit of delinquent borrowers are also often maxed out, which may be a sign of strained income.
Alex Ilagan, the industry group’s president, said unpaid credit card bills were expected especially with more people getting unemployed. “This was 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,” he said in a statement.
While the jobless rate eased to 8.5% in October from a record-high of 17.5% in July, the central bank itself had expected unpaid bank loans to increase slowly just as grace periods are ended and the pandemic’s damage in the form of shuttered businesses become more evident. The broader non-performing loan ratio across all banks rose to 3.69% as of October.
The problem is only bound to exacerbate. Chuchi Fonacier, central bank deputy governor, last month said lending may increase as the cap on credit card charges to 2% per annum is enforced in November. CCAP said the limit may trigger more financial woes for their members, but Fonacier countered card penalties are not waived entirely, and therefore should sustain some cash flows to banks.
More broadly, the Bangko Sentral ng Pilipinas (BSP) last Friday opened more opportunities for banks to lend by putting another cap, this time on loans that can be extended to companies that qualify as alternative compliance to reserve requirements.
Under the new rule, lenders may only qualify as reserves lending of up to P300 billion in loans to micro, small and medium enterprises and P425 billion to large companies. This lending inevitably includes credit card receivables. “Ultimately, a credit card can be a reliable convenient payment tool and a readily available line of credit for emergencies,” CCAP said.
On face value, the limits seem to be misplaced since banks are nowhere near the limits as of November 12 when they had extended P123.6 billion on MSME loans and P29.5 billion to bigger companies.
BSP Governor Benjamin Diokno said the limits are not put up to protect the banks’ balance sheets by limiting their chance to take in risks. “The idea is to encourage competition among banks to lend to MSMEs and large firms as needed,” he said in a Viber message last Friday.
“We want to signal to the banks that this monetary accommodative measure is not unlimited,” he added.
On the part of consumers, Ilagan said it is to their interest that they up their bills on time. “Some major companies check the credit history of their job applicants. In some banks, bad credit behavior can also affect possible promotion to higher positions,” he said.
“In the future, other non-financial institutions that provide credit lines for the use of their services, like a post-paid mobile phone connection, may also start accessing credit history before providing service to a new customer,” he added.
Editor's Note: Amended to reflect correct full-year 2019 delinquency rate.
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