Credit card billings up 45% in Q1: Philippines

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Post-lockdown revenge spending among Filipinos continued to fuel the domestic economy in the first quarter, as evidenced by the surge in credit card use, according to the Credit Card Association of the Philippines (CCAP).

Latest data showed gross billings jumped by 47 percent to P410 billion from January to March compared to P279 billion in the same period last year.

The strongest growth since the pandemic started in 2020 was achieved despite the aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) to fight inflation and stabilize the peso.

While interest rates and inflation could still rise, CCAP executive director Alex Ilagan said the association does not see a let-up in personal consumption anytime soon.

'If at all, rising inflation may even push more cardholders to use their credit card to cope with the higher prices because a credit card is one way to extend your purchasing power. A credit card is basically a form of installment credit, which the Filipino consumer has learned to utilize. As long as cardholders pay on time, it will have no negative impact on either the cardholder or the bank issuer,' Ilagan said.

As the economy continues to reopen and becomes more robust, pent-up demand for consumer goods and services will persist, feeding into the growth of the e-commerce, retail and services, travel and tourism, automotive and housing sectors, among others.

'The credit card industry is indirectly contributing to this economic resurgence. If the economy remains strong, more people will be employed and will qualify for a credit card, thus sustaining the growth in credit card ownership and usage,' Ilagan said.

The BSP has raised key policy rates by 425 basis points since it started its tightening cycle in May last year. This brought the benchmark interest rate to a 16-year high of 6.25 percent from an all-time low of two percent.

Last Jan. 13, the central bank issued Resolution 5513 raising the maximum interest rate or finance charge imposed on a cardholder's unpaid outstanding credit card balance by 100 basis points, to three percent from two percent per month or 36 percent from 24 percent per annum.

On the other hand, the existing ceiling on the monthly add-on rate that credit card issuers can charge on installment loans was maintained at a maximum rate of one percent, while the maximum processing fee on the availment of credit card cash advances remained at P200 per transaction.

The BSP imposed a cap on all credit card transactions in November 2020 as a temporary relief measure to ease the financial burden of consumers from the COVID-19 pandemic and promote affordable access to credit.

'Credit card delinquency rate will also remain low and may even continue its downtrend in the last two years because cardholders will have the means to pay their bills,' he said.

Despite the elevated inflation and rising interest rates, the Philippines sustained its robust recovery with the gross domestic product (GDP) growth of 7.6 percent last year from 5.7 percent in 2021.

Based on CCAP's quarterly survey of its 17 member issuers, there are now a total of 11.8 million credit cards issued in the Philippines as of end-March.

Majority at 64 percent or around 7.5 million Filipinos own only one card.

Household consumption, the main economic driver in the country, grew by 8.3 percent in 2022 versus 4.2 percent in 2021. Credit card receivables accounted for the lion's share of consumer loans at 40 percent as of end December.

'While Filipinos' spending spree keeps the economic engine chugging along, we must bear in mind that a credit card is not 'free money'. All transactions charged to a credit card will have to be paid so be a responsible card user and don't use your credit card beyond your capability to repay the amount at a later date,' Ilagan said.

CCAP has been actively conducting credit awareness programs in various colleges and universities as well as companies since 2017.