Receivables in credit cards industry

According to IDEA’s latest Industry Reports, Credit card receivables are one of three broad classifications of the Bangko Sentral ng Pilipinas for the consumer finance industry (the other classifications are housing loans and auto loans). The consumer finance industry is an industry that involves bank and non-bank entities whose primary function is to provide credit facilities to end-consumers.

Credit cards are an important factor in personal financing, because it gives the consumer an extended sense of purchasing power even when traditional cash runs out. The Philippines is one of Asia’s best credit card prospects due to its relatively young consumer base with a growing personal spending pattern. For the first three quarters of 2007, personal consumption expenditure (PCE) in the country was at Php3.3 trillion. At constant prices, this is an 8.76% expansion from the same period last year, and this uptrend in spending patterns by consumers makes credit cards a viable payment instrument for consumers, especially in the upper income brackets (A & B). Based on spending cycles, credit card receivables and PCE follow the same trends: they tend to be sluggish during the first quarter of the year and continue increasing, peaking at the third quarter of the year. Latest data show that credit card receivables have been continuously growing, with Php106 billion credit card receivables as of September 2007, a 22.6% increase from the Php86.5 billion recorded a year ago.

Per same industry report, this is at par with the 23% increase in consumer loans that was triggered mainly by the low-interest environment that encouraged spending and, subsequently, borrowing. For the third quarter of 2007, purchases using credit cards account for 5.5% of the financial sector’s Php1.9-trillion loan book. Different types of banks offer credit card services to end clients. As of August 2007, there are 7,704 banks in the Philippines that are under the direct regulation of the Bangko Sentral ng Pilipinas (BSP), including various universal and commercial banks, as well as thrift and rural banks. Also under the regulation of the BSP are five non-bank credit card companies. These banks and other companies issue cards from globally recognized credit card associations such as Visa, Mastercard, JCB, American Express (Amex), and Diners Club.

In 2006, the Top 1000 Companies included three best performing firms concentrated in credit card activities. Metrobank Card Corp. was on top with a Php3.5 billion gross revenue and Php654 million in net income, with high year-on-year growth at 69.1% and 38.5% with the respective figures.

Following closely was Equitable Card Network, Inc., whose gross revenues grew by 10.7% to Php3.1 billion, and whose net income expanded by 13.1% to Php420 million. Finally, the Yuchengco Group of Companies’ Bankard, Inc. rounded out the top three with a gross revenue of Php2 billion despite a slight year-on-year decline of 2.7%. The company incurred a net loss of Php598 million, although that position was a 41.5% improvement from the previous year’s performance, according to IDEA.

(Mr. Ed F. Limtingco can be reached at 0917-7220521 or at [email protected])