Philippine Central Bank to impose stricter credit card regulations

The Central Bank will be able to limit or prohibit annual membership charges.

Maybank Kim Eng reported that the Philippine Senate passed its version of the House of Representatives’ bill intended to regulate the credit card industry. The proposed law aims to improve the overall business climate by ensuring fair and sound consumer credit practices. A bicameral version needs to be crafted and approved before it is signed into law by the Philippine president.

Here's more from Maybank Kim Eng:

Currently, the industry is lightly regulated. The BSP only specifies loss provisions required for credit card loans, while other terms are driven by market conditions. The proposed law grants the BSP supervisory powers over all credit card issuers, acquirers and transactions.

It gives it authority to set rules of conduct, establish standards and ensure compliance. The BSP will also be able to limit or prohibit annual membership charges. Annual fees now are PHP1,200-3,500 depending on membership type.

Active credit cards increased to 8.3m in 2014 from 6.6m in 2009, resulting in an 8% penetration rate. Card receivables in 9M15 of PHP168b grew at a five-year CAGR of 8% and comprised 17% of total consumer loans. The card NPL ratio of 8% is higher than mortgages (3.1%), auto (4.8%), and salary loans (4.2%). Due to lower credit quality, monthly card interest rates are 2.5-3.5%. Cardholders get other benefits by way of freebies and promos.

The impact to earnings is hard to determine at this point without the specific BSP regulations. The intent is to provide more consumer protection than is currently available. However, stricter rules on interest rates, penalties and fees may be negative for earnings in terms of limiting the pool of acceptable cardholders.

This could be mitigated by the forthcoming creation of a credit bureau that makes accessible a centralized data base of credit histories. We estimate credit card fees account for ~10-12% of banks’ fee income.