Starting next month, credit cardholders can expect higher fees imposed on their unpaid credit card outstanding balance as the Bangko Sentral ng Pilipinas (BSP) recently approved a higher monthly interest rate cap of 3% (36% per annum). <\/p>\n\n\n\n
This comes after the BSP imposed a temporary relief measure back in November 2020 that allowed credit cardholders to pay no more than 2% interest rate per month (24% per annum), easing cardholders\u2019 financial burden amid the COVID-19 pandemic. <\/p>\n\n\n\n
Meanwhile, the existing ceiling on the monthly add-on rate imposed on installment loans will be maintained at 1%. In a similar way, a P200 maximum processing fee will also be maintained on credit card cash advances.<\/p>\n\n\n\n
As per BSP Governor Felipe Medalla, the higher interest rate cap takes into consideration the upward trend in domestic interest rates given the high inflation environment. In turn, the adjustment in interest rate ceiling is also seen to help banks and credit card issuers cover the higher costs incurred when handling consumer transactions.<\/p>\n\n\n\n
This is certainly bad news for consumers but good news for banks. Aside from elevated prices of basic commodities due to the high inflation, credit cardholders in the Philippines are now faced with another burden. A 100-basis point (1%) increase in the monthly interest rate cap starting next month means higher credit card payments which may potentially dampen consumption.<\/p>\n\n\n\n
Despite being a challenge to consumers, the policy seeks to benefit the banks as they earn through interest income. Latest data from the BSP revealed that credit card loans jumped to P539.25 Billion (up 26.5%) in November 2022. <\/p>\n\n\n\n
Hence, the banks worth looking at given this policy are those with high exposure to credit cards which are mainly, BDO Unibank Inc. (BDO) – who is in a market-leading positions in terms of cardholder base, merchant acquiring gross billings and credit card receivables – and Union Bank of the Philippines (UBP) which reported an 878% year-on-year growth in its credit card portfolio back in 9M 2022 due to the full effect of its Citi acquisition.<\/p>\n\n\n\n
With the further reopening of the economy, we continue to see an expansion in loan demand – although at a slower pace – as inflation and higher interest rates, including interest rate caps, may dampen demand moving forward.<\/p>\n\n\n\n