Millennials seen as new growth driver for banks

UNLIKE the generations before them, today’s young people are not afraid or shy to tap bank loans to buy gadgets, cars, condominium units or to set up businesses.

These millennials in their 20s to early 30s are thus becoming a new growth driver of consumer lending, now accounting for about 20 percent of the personal loan portfolio of BPI Family Savings Bank, the country’s largest thrift bank.

“Most borrowers are still in the age of 35 to 50 but we have noted an increase in propensity among the younger age group,” said Ginbee Go, senior vice president for retail loans at BPI Family.

“They usually start with personal loans, then they move to auto loans. They want to have their own cars. I think that for most young ones entering the workforce, that’s their trophy. It’s interesting to see them borrowing for a home (purchase). Usually after five years of working, they start thinking of investing even in a small studio (condominium) unit,” Go said.

The millennials now account for 5 to 10 percent of BPI Family’s other retail banking segments like car, housing or “Ka-Negosyo” (business) loans.

For car loans, the average age of borrowers is about 30 years old while housing loans are dominated by 40-something people while the “Ka-Negosyo” loan is mostly tapped by people in their 50s. But Go noted that younger borrowers in their 20s to early 30s represent an emerging key segment.

“In the past, normally they (young people) would be afraid (to borrow). Our parents will tell us, don’t borrow because it’s scary. Save money,” Go said. “But now, the young have the propensity to get a loan not because they’re not aware of the risks but they know that with employment, with regular cash flow, they can put their money to better use, so they can invest. And they are good payers.”

She said it was a practice of BPI Family to lend responsibly, not to lend excessive amount that young people could not afford. The bank also helps to educate these young people and assists them with lower rates and more affordable financing.

For personal loans, Go said the millennials typically could borrow an amount 1 to 1.5 times their monthly salary and amortize the loan for as long as 36 months at a rate comparable to the cost of transferring outstanding balance in credit cards or about 2 percent per month. So a millennial earning P25,000 can borrow as much as P40,000, typically to buy a new gadget or to travel.

Overall, the BPI group reported P173 billion in total retail loans as of the end of 2014. At present, the group has a retail client base of about 180,000.

Go also noted that millennials were bolder in trying their hand at entrepreneurship, attributing this to the introduction of entrepreneurship classes and other specialized courses in schools and universities.

“Interestingly, the young are being more creative. They are so into creating their own business. You see the growth in online business, in some form or another—whether it’s developing a software and offering them to companies or online commerce per se by putting up e-commerce sites. These are new industries that were not in place before and you see more and more of the young gravitating toward that,” she said.

Banks like BPI Family are willing to extend as low as P100,000 in loan to fund start-up businesses although the average loan size under the “Ka-Negosyo” offering is P3 million.

“Franchising is a way by which the young—and even our retirees—can try their hands at entrepreneurship,” she said, noting how a number of young people were likewise trying out this option. “There’s a lot of buzz about entrepreneurship.”

“The young ones go for franchises which are affordable and easy enough to manage,” she said, citing brands like “Potato Corner” or “Generika” (generic pharmacy) as examples.

Overall, BPI Family is upbeat on lending more to households and small businesses, where average loan yields are higher at 8.5 percent compared to lending to top-tier corporations. This is in line with the bank’s strategy to focus on growing retail loan volume by at least 15 percent each year.

“We have a growing population. The increasing disposable incomes point to opportunities for us and we have barely skimmed the surface,” she said.

After doubling its business in the last five years, BPI Family sees its business becoming more broad-based, with more auto loans going into more affordable brands and models, more housing loans on the mass and affordable housing segments and more “Ka-Negosyo” loans among the micro, small and medium enterprises. Getting the millennials into the net is also a way of riding on the country’s demographic dividends.