BSP maintains ceilings on credit card transactions

The Monetary Board maintained the credit card ceilings on credit card transactions under Circular No. 1098 dated 24 September 2020.  In this regard, the maximum interest rate or finance charge on the unpaid outstanding credit card balance of a cardholder remains at 2 percent per month or 24 percent per year.

Similarly, the monthly add-on rates that credit card issuers can charge on installment loans is retained at a maximum rate of 1 percent. Meanwhile, the maximum processing fee on the availment of credit card cash advances stays at Php200.00 per transaction.

“The decision is based on a holistic assessment of developments in the macroeconomy, the state of credit card financing as well as the safety and soundness of banks and other credit card issuers. It will also continue to help ease financial burden of consumers through affordable credit card pricing.” Governor Diokno added.

The retention of the existing ceiling is in keeping with the current low interest rate environment.  The interest rate on the BSP’s overnight reverse repurchase facility was maintained at 2.0 percent which is the lowest policy rate since the beginning of the pandemic.

Latest credit card business activity data show that the adoption of the ceilings on credit card transactions has not affected availability of credit card financing to households.  Credit card applications and billings registered an increasing trend with the lifting of the community quarantine restrictions in June 2020. 

Similarly, credit card receivables continued to post double-digit growth of 13.5 percent year-on-year as of end-December 2020. These positive outcomes were noted even when banks and other credit card issuers became more selective in their credit card approval process on account of the COVID-19 outbreak and its impact on paying capacity of financial consumers. 

The credit card industry also remains safe and sound. Based on results of a survey conducted by the BSP, banks and other credit card issuers were able to post net income on their credit card business as of end-December 2020 from increased credit card usage and streamlined operations resulting in lower administrative costs. 

Credit card companies also adopted a more prudent stance by increasing provisions for credit losses on credit card loan accounts in anticipation of rise in non-performing credit card loans.  The BSP expects that the operationalization of the Financial Institutions Strategic Transfer Act will help temper further rise in non-performing credit card loans this year.

The BSP will continue to closely monitor the impact of the ceilings on the state of credit card financing and sustainability of credit card operations of banks/credit card issuers, especially against the backdrop of the evolving COVID-19 pandemic. The BSP will undertake another review of the ceiling rates on credit card transactions after six months.

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