Relief for credit card debts eyed

By: Michelle V. Remo, April 9th, 2012 01:58 AM

Consumers buried in credit card debt may have their worries eased should talks between the Bangko Sentral ng Pilipinas (BSP) and banks on a relief system prosper.

According to an official of the BSP, the merits of a “debt restructuring” system for credit cardholders suffering from income woes is being discussed by regulators with representatives of the banking sector.

“Debt restructuring” is a banking term that refers to a mechanism by which people, or entities, who can no longer afford to pay their debts are given some form of relief, such as staggered payment schemes and a reduction of interest rates.

Johnny Noe Ravalo, managing director at the BSP, said allowing debt restructuring for credit cardholders is beneficial not only for the borrowers but also for banks. Restructuring will encourage credit cardholders to still pay their obligations instead of running away from them.

It would also make the country’s financial system more mature, he said, adding that in advanced economies like the United States, such a system is observed.

But Ravalo said that guidelines for the implementation of a debt restructuring system must be clearly set so that banks avoid potential abuses by credit cardholders.

Credit cardholders could abuse the system by falsely claiming to be suffering from financial difficulty, he explained.

Data from the BSP showed that total credit card receivables of universal and commercial banks in the country amounted to P121.2 billion as of end-June 2011, up by 6 percent from P114.2 billion as of the same period of the previous year.

The latest figure accounted for 4.5 percent of total outstanding loans from universal and commercial banks.

Nonperforming credit card loans accounted for 12.9 percent of total credit card loans. The 12.9-percent nonperforming loans (NPL) ratio for credit cards is thus much higher than the overall NPL ratio for all types of loans, which is at less than 3 percent.

NPL ratio is the proportion of “nonperforming” or “bad debts” to total outstanding loans extended by banks. Loans are described as nonperforming or bad if these remain unpaid at least 30 days upon maturity.

Analysts said the relatively high NPL ratio for credit cards indicated that those who have credit card debts may be having more difficulty in paying their obligations.

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