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Credit card delinquencies seen increasing
CCAP said the delinquency level of credit cards is expected to continue deteriorating beyond 2020 until economic recovery is achieved and cardholders gain back their sources of livelihood.
Philstar.com/File

Credit card delinquencies seen increasing

Lawrence Agcaoili (The Philippine Star) - January 26, 2021 - 12:00am

MANILA, Philippines — The delinquency rate of credit card issuers is expected to increase further due primarily to the loss of income and unforeseen major expenses caused by the prolonged lockdowns to slow the spread of COVID-19, according to the Credit Card Association of the Philippines.

CCAP said the delinquency level of credit cards is expected to continue deteriorating beyond 2020 until economic recovery is achieved and cardholders gain back their sources of livelihood.

“The factors that will contribute to the worsening of credit card delinquency rate include the higher default rate and contraction in receivables as a result of lower card usage volume,” it said.

Latest data showed credit card delinquency rate surged to 11.5 percent as of end-September 2020, more than two and a half times the level booked in end-2019.

According to CCAP, the dramatic increase in default rate was driven by the widespread loss of source of income/livelihood of credit cardholders, which is a direct consequence of the slowdown in economic activities due to the prolonged lockdown.

“The year-end 2020 delinquency rate for the total credit card industry is not yet available, but it is expected to continue its upward trend which started in the second quarter of last year as a result of the prolonged lockdown which precipitated the current economic crisis in the country,” it said.

Credit card delinquency occurs when a cardholder has a poor payment history, and frequently pays bills after the due date. The credit lines of delinquent cardholders are also often fully utilized, which may be a reflection of a very tight cash flow.

Credit card receivables booked a double-digit decline of 11 percent to P405 billion as of end- September last year from P456 billion in 2019 due to significant reduction in billings.

To ease the burden of consumers, the regulator issued Circular 1098, capping the interest rates on credit card charges to two percent per month.

“One of the unintended consequences of BSP Circular 1098, which capped interest rates to two percent per month, will be the tightening of credit lending standards in order to mitigate credit losses, which worsened during the pandemic and further compressed the profit margins due to lower yields and higher credit costs,” CCAP said.

Likewise, the 30-day debt reprieve under Republic Act 11469 or the Bayanihan to Heal as One Act (Bayanihan 1) expired in June last year, while the one-time 60-day debt moratorium provided under RA 11494 or the Bayanihan to Recover As One Act (Bayanihan 2) also expired December last year.

BSP Deputy Governor Chuchi Fonacier earlier issued Circular Letter 2021 – 008 calling for the strict compliance with prevailing regulations on credit cards and financial consumer protection as well as the provisions of the Bayanihan laws after the regulator received a high number of credit card-related complaints.

“The BSP reminds all BSP-supervised financial institutions operating as credit card issuers to strictly comply with the regulations governing credit card operations and consumer protection,” Fonacier said.

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