Credit card issuers see more challenges

MANILA, Philippines — Credit card issuers expect delinquency rate to be more challenging despite a lower default rate in the second quarter,  according to the Credit Card Association of the Philippines (CCAP).

Alex Ilagan, executive director at CCAP, told The STAR delinquency rate of the credit card industry improved to 6.1 percent in end-June from 8.37 percent in end 2020.

“CCAP continues to expect the delinquency rate to be more challenging until the economy recovers and the credit card holders secure more stable sources of income,” Ilagan said.

The dramatic increase in default rate last year was driven by the widespread loss of source of income/ and livelihood of credit cardholders, which is a direct consequence of the slowdown in economic activity due to the prolonged lockdown to slow the spread of COVID-19.

The Philippines slipped into recession with a record 9.6 percent gross domestic product (GDP) contraction last year.

The pandemic-induced recession stretched to five quarters as the GDP shrank by 4.2 percent in the first quarter as strict lockdown and quarantine measures were reimposed in NCR Plus from end-March to the middle of May this year.

The government again placed the NCR under enhanced community quarantine from Aug. 6 to 20 due to the more contagious Delta variant.

Aside from the relief measures provided under Republic Act 11469 or the Bayanihan to Heal as One Act (Bayanihan 1) and RA 11494 or the Bayanihan to Recover as One Act (Bayanihan 2), Ilagan said credit card issuers also voluntarily implemented various debt forbearance programs.

These, Ilagan explained, included reversal of penalties and  late payment fees, lower interest rate for past due, installment loan extension, as well as more relaxed restructuring requirements.

“Since these programs were offered voluntarily by member banks, it may vary from bank to bank depending on the internal policy of each bank,” Ilagan said.

Furthermore, Ilagan said CCAP has strengthened its #FightBudol campaign as the shift to the digital space amid mobility restrictions   gave rise to fraudsters and more complex scams.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed credit card loans extended by big banks slipped by 2.5 percent to P400.11 billion in end-June from P410.41 billion in the same period last year.

This translated to an 8.6 percent drop in household lending to P818.96 billion from P895.59 billion.

Over all, loans disbursed by universal and commercial banks contracted for the seventh straight month, albeit at a slower pace of two percent in June from four percent in May, as the spread of the Delta variant continued to temper the outlook for economic recovery.

Lending by big banks amounted to P9.09 trillion in end-June from P9.28 trillion a year ago.

“Credit activity remains weak, as measures to address the still elevated number of COVID-19 cases constrained domestic economic activity and continued to dampen market sentiment,” BSP Benjamin Diokno said earlier.