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March 05, 2024

Higher credit card interest to earn PH banks P40-B

Credit watcher Fitch Ratings said Philippine banks will earn an additional P30 billion to P40 billion following the recent decision to increase interest rate and charges on credit card balances.

“The recent lifting of the interest rate ceiling on credit cards in the Philippines will buoy banks’ net interest margins,” said Fitch in a non-rating commentary.

It added that the increase would “enable banks to apply better risk-based pricing on unsecured lending. Credit costs are likely to increase as banks expand in the segment, but we expect them to be manageable amid resilient economic growth in 2023 and to be offset by higher lending yields.”

Fitch estimates that the new ceiling could add around P30 – P40 billion in interest income for the banking sector, which will further widen margins by about 15 basis points (bps). The firm earlier projected a 30 bps increase on the banking sector’s net interest margins, following BSP’s combined 350 bps rate hikes last year.

“This benefit may be partly offset by the rise in credit costs if banks relax their standards or expand their credit card portfolios more aggressively, though we do not expect any increase to be material, provided there is no new shock in the economy, which suggests that the sector’s profitability could marginally surpass our base case,” added Fitch.

The new cap on credit card interest rates was approved by the central bank on Jan.13 and was announced on Jan.20. Once implemented, it will remain in effect unless revised by the BSP. The BSP will review the policy in six months to determine its impact on consumers and the credit card industry.