Higher rate cap music to credit card firms’ ears

The umbrella organization of the country’s credit card issuers welcomed the central bank’s higher interest rate ceiling on monthly interest payments, saying the “market-driven” approach was good for competition, however, an analyst warned the move could also hurt demand for loans.

In a statement on Monday, the Credit Card Association of the Philippines (CCAP) said it supported the mandate of the Bangko Sentral ng Pilipinas (BSP) to maintain “monetary stability and the overall soundness of the Philippine financial system.”

“It believes the recent [Monetary Board] decision to ease the monthly interest rate cap on credit cards is part of the BSP’s calibrated responses to the present economic situation,” CCAP said.

This comes as the BSP raised the monthly interest rate cap on credit card payments to 3 percent or 36 percent per year from the previous 2 percent ceiling that was imposed in the midst of the COVID-19 pandemic.

CCAP represents 17 credit card issuers, mostly comprising the country’s largest banks.

“Market-driven rates will help, not only in boosting competition in the industry, but in accelerating financial inclusion and creating a cashless society—which are aligned with the BSP’s goals,” CCAP said in its statement.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the BSP’s decision reflected the reality of the higher interest rate environment as central banks in the Philippines and overseas sought to tamp down surging inflation.

But he noted this could also reduce demand for loans and eventually hurt consumer spending.

“Just like any other type of loans, such as business loans and other consumer loans such as housing loans, auto loans, and other types of loans, this could slow down demand for loans and, in turn, also slow down purchases by consumers,” Ricafort told the Inquirer.

“As part of the whole-of-economy approach to tighten monetary policy by the United States/global central banks and effectively slow down overall demand in the economy as part of the efforts to bring down elevated inflation/prices, to fulfill their mandate of price stability/stable inflation,” he said.

According to the BSP, there were 10.3 million cards in use as of June 2021. It also recorded a 34 percent annual surge in credit card billings to P100.6 billion during the same period.