Publication: Business Mirror
Publication Date: October 6, 2020
Credit-card holders are urged to maintain a good credit standing even during the community quarantine to ensure financing after the economic and health crisis.
The Credit Card Association of the Philippines (CCAP) said in a statement on Tuesday that some clients may need their credit cards to have additional funding sources as they return to their usual lives after government orders easing of restrictions. In addition, credit cards can also be used for potential emergencies in the future, it said.
CCAP Executive Director Alex G. Ilagan said that clients could maintain good credit standing by paying bills on time.
“They should also avoid maxing out their credit limits because it will reduce their credit score,” Ilagan said.
He added that credit-card holders can avail of forbearance programs extended by issuers should users need relief. This is in addition to the 60-day grace period on debt payments provided by Republic Act 11494.
“Credit card customers can avail of these forbearance programs to help them repay their credit card debts through easy and flexible repayment schemes,” he said.
The industry group noted that borrowers have been having a hard time meeting their payment deadlines amid the ongoing crisis. This, as credit card usage declined by 27 percent in the first half this year compared to the same period in 2019.
“The high unemployment rate, as well as the loss of livelihood for self-employed individuals and small business owners took its toll on the credit card industry,” he said. “We saw an unprecedented rise of credit- card holders being unable to pay their balance, which resulted in the credit card past due level growing by as much as thrice by September 2020 as compared to the pre-ECQ [enhanced community quarantine] level.”
With unpaid debts rising, Ilagan observed that banks were forced to earmark higher provisioning against potential credit loss.
Data from Bangko Sentral ng Pilipinas (BSP) shows that the banking sector’s allowance for bad debts stood at P322.09 billion as of July, which is higher than last year’s P202.22 billion for the same period.
Ilagan said that the industry has been exerting efforts to survive during a pandemic, including using digital platforms to cut costs.
As credit card issuers push for a shift to electronic billing statements, CCAP noted that enrollment has reached 75 percent.
Going digital means that the credit-card bills can be delivered in a timely fashion even during a pandemic, it added.
Recently, the Monetary Board greenlighted setting the annual interest rate ceiling on all credit card transactions at 24 percent. This policy will be effective on November 3.
The BSP said that the interest rates or finance charges on unpaid outstanding credit card balance should only be 2 percent or lower monthly.
The maximum rates are subject to review by the Central Bank every six months.
“Financial discipline is important, and credit cards should be viewed as a tool for convenience in making payments and a readily available standby line of credit for emergency or big purchases,” Ilagan said.
As of end-July, the outstanding credit-card loans provided by big banks for household consumption amounted to P409.05 billion, 27-percent higher than P321.06 billion year-on-year.