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May 27, 2024

Interest rate cap on credit card transactions kept at 2% per month

Monetary authorities retained the cap on credit card transactions at two percent per month or 24 percent per year to ease the financial burden of Filipinos amid the global health crisis.

BSP Governor Benjamin Diokno said the decision of the Monetary Board to maintain the ceilings under Circular No. 1098 issued in September 2020 will continue to help ease the financial burden of consumers through affordable credit card pricing amid the ongoing COVID-19 pandemic.

“It will also allow the BSP to assess the impact of the improvement in macroeconomic fundamentals and easing of mobility restrictions on the performance of the credit card industry,” Diokno said.

According to the central bank, the monthly add-on rates that credit card issuers can charge on installment loans was also retained at a maximum rate of one percent, while the maximum processing fee on the availment of credit card cash advances was maintained at P200 per transaction.

Latest credit card business activity data show that the demand for credit cards moderated in the second half of 2021 as customers shifted towards alternative digital products.

While the number of issued and outstanding credit cards inched up by only 0.3 percent to 10.3 million, the BSP reported that monthly card billings jumped by 33.9 percent to P100.6 billion in 2021.

With the resumption of business activities and easing of mobility restrictions, credit card receivables grew by 4.9 percent to P437.1 billion in December 2021, albeit at a slower trend compared to last year.

Banks and credit card issuers were also able to maintain the asset quality of their credit card portfolios through intensified remediation and workout arrangements with the non-performing loan (NPL) ratio improving to 6.8 percent in 2021 from 8.9 percent in 2020.

In addition to demonstrating prudent lending standards, the earnings of banks and credit card issuers increased to P18.5 billion in 2021, still lower than levels recorded by the industry before the COVID-19 pandemic.

“Moving forward, the credit card industry intends to further reduce operating costs through digital transformation and process improvements as well as maintain prudent lending standards,” the BSP said.

The ceilings on credit card transactions remain in effect unless revised by the BSP.

“The BSP, however, will closely monitor evolving domestic and external developments that will impact the state of credit card financing, sustainability of credit card operations and viability of banks and credit card issuers,” it added.​