BSP keeps cap on interest rate in credit cards

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has kept the cap on credit card transactions at two percent per month or 24 percent per year to help ease the burden of Filipino consumers as the country continues to recover from the impact of the   pandemic.

BSP Governor Benjamin Diokno said the decision of the Monetary Board to retain the existing ceiling is in line with the current low interest rate environment in the country.

“The decision of the Monetary Board is based on a holistic assessment considering the developments in the macro economy, the state of credit card financing as well as the safety and soundness of banks and other credit card issuers. It will also continue to help ease financial burden of consumers through affordable credit card pricing,” Diokno said.

The monthly add-on rates that credit card issuers could charge on installment loans was retained at a maximum rate of one percent as well as the maximum P200 per transaction processing fee on the availment of credit card cash advances.

The BSP has maintained an accommodative monetary policy stance by keeping interest rates at an all-time low of two percent.

The BSP formalized the imposition of the ceiling approved by the Monetary Board through Circular   1098 issued in   September last year. The cap took effect on Nov. 3, 2020.

The BSP chief said the ceilings on credit card transactions remain effective unless revised by the regulator.

“The BSP will continue to closely monitor the impact of the ceilings on the state of credit card financing and sustainability of credit card operations of banks or credit card issuers against the backdrop of the evolving COVID-19 pandemic,” Diokno said.

Latest data showed an improvement in credit card business activity as the number of monthly applications surged by 175 percent to 646,000 in end-June from 235,000 in June last year.

Likewise, monthly card billings also grew by 29.5 percent to P73 billion from P56.3 billion as the number of active credit cards went up by 8.7 percent to 10.2 million from 9.4 million.

Despite the increase in lending by big banks for two straight months, credit card loans slipped anew by 0.3 percent to P402.07 billion in September this year from P403.43 billion in end-September last year.

In addition to demonstrating prudent lending standards, banks and other credit card issuers were able to post net income on their credit card business during the same period from increased credit card usage, albeit below pre-pandemic levels.

Moving forward, banks and credit card issuers intend to offer more competitive credit card products, improve customer experience and reduce operating costs through digital transformation and process improvement.

For one, Robinsons Bank president and chief executive order Elfren Antonio Sarte earlier said banks would continue to help clients by adjusting costs to cope up especially in the time of the COVID-19 pandemic.

“It is a temporary hit on a lot of us in terms of our financial profitability for the credit card, but it doesn’t make the product unprofitable,” Sarte said.