Central bank studying calls to limit non-bank loan charges

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(FILE PHOTO)

Metro Manila (CNN Philippines, October 21) — The Bangko Sentral ng Pilipinas (BSP) is looking into calls to also set a limit on fees and interest rates charged by non-bank lending firms after a similar ceiling on credit cards.

Rochelle Tomas, deputy director of BSP's Center for Learning and Inclusion Advocacy, said the regulator is considering the suggestions made by the Securities and Exchange Commission and some lawmakers to regulate the loan rates imposed by non-bank financial institutions, which is seen as yet another relief for consumers amid the COVID-19 crisis.

"The short answer is it depends," Tomas said during a financial literacy forum hosted by Home Credit Philippines.

"It will need to undergo a very, very close coordination with the industry because as you know, the cap on interest rates on credit cards was consulted with the credit card industry very extensively," she added.

The central bank trimmed its key policy rate to a record low of 2.25% this year, hoping that cheap loans will make it easier for people and businesses recover from the pandemic-induced recession.

The BSP spent months for consultations with banks and other credit card issuers before imposing a yearly interest rate ceiling of 24% for credit card transactions, or a maximum finance charge of 2% monthly. 

The measure was only finalized and approved in late September, and takes effect Nov. 3.

Tomas explained that the decision to limit finance charges was pursued upon learning that the average annual interest of 47% for the Philippines is starkly above the region's 18-27% benchmark.

"The same process will need to be done for other types of credit products – it will have to be backed by good and robust data so that we can say that we need to lower interest rates for different types of credit products," she added, saying that the BSP was duty-bound to set a "reasonable" rate.

Financial firm Home Credit said it is open to the proposal and can probably afford the loan cap.

"There has been a discussion as Rochelle (Tomas) has mentioned. We are collaborating with them," said Sheila Paul, chief marketing officer of Home Credit. "If there's any question about how this affects our business model, I think we will work with it. I think we've proven to be resilient."

Paul added that the non-bank firm saw a boost in loans during the quarantine months, with consumer demand shifting away from mobile phones and toward laptops, appliance, and even bicycles – the essentials under the "new normal" with more people working and studying at home.

The company's credit card product will be covered by the limits that will kick in next month.