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Rising credit card usage may lead to spike in household debt

GROSS CREDIT CARD billings surged by 47% to P410 billion in the first quarter, data from the Credit Card Association of the Philippines showed. — REUTERS

By Keisha B. Ta-asan, Reporter

MACTAN, Cebu — A recent surge in credit card usage by Filipinos amid elevated inflation and interest rates could lead to a spike in household debt and pose a risk to financial stability, analysts said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said rising credit card usage is not a “danger” yet, but could be an issue.

“We’re seeing high credit card usage, some people are saying it’s because of high inflation and high [interest] rates. That is one risk I see, the buildup of household debt,” Mr. Mapa said on the sidelines of a financial stability forum of the Bangko Sentral ng Pilipinas (BSP) and International Monetary Fund (IMF) in Cebu.

Outstanding loans by big banks rose by 10.1% to $10.762 trillion in March, data from the BSP showed. Household borrowings expanded by 21.3% in March year on year. Credit card loans grew by 27.9%, while salary-based general purpose consumption loans rose by 67%.

Data from the Credit Card Association of the Philippines showed gross credit card billings surged by 47% to P410 billion in the first quarter. This was the fastest growth since the coronavirus pandemic started in 2020.

Mr. Mapa noted that consumer credit is normally used for big-ticket items such as household appliances.

“Unfortunately, because of high inflation, (Filipinos) had to use it for consumables,” he added.

Inflation has remained elevated since last year, prompting the BSP to hike borrowing costs by 425 basis points (bps). This brought the key policy rate to a near 16-year high of 6.25%

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said persistent inflation had pushed consumers to borrow more.

“Consumers’ budget is not enough, so they are forced to make do and use a credit line,” he said in mixed English and Filipino.

Mr. Neri said high credit usage could “potentially be a source of risk” but noted that this is manageable.

“Because of the reopening and the strong growth of the economy, it’s really manageable. Compared with the region, our household debt-to-gross domestic product (GDP)  is one of the lowest,” he said.

The Philippine economy grew by 6.4% in the first quarter. This was within the 6-7% growth target of the government, but slower than 7.1 a quarter earlier.

Mr. Neri said geopolitical tensions and financial uncertainties in the United States are risks to the country’s financial stability.

“We’re not sure if US inflation is already controlled. And with the labor markets so strong, who knows, they may still be hiking later this year. We don’t know if their problem is over,” he added.

The US Federal Reserve has raised key policy rates by 500 bps since March last year, bringing the Fed fund rate to 5-5.25%.

But Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said higher credit usage could signal improving economic conditions.

“It may also be a measure of greater confidence to borrow on better economic and employment prospects, such as to finance purchases of homes, vehicles and other big-ticket items,” he said in a Viber message.

Mr. Ricafort added that household debt has been about 10% of GDP, which is lower than other Asian countries who “have at least two to three times more than the Philippines.”

Meanwhile, BSP Senior Assistant Governor Johnny Noe E. Ravalo said the central bank is continually monitoring possible and emergent risks to financial stability.

“All data series that the market is worried about needs to be monitored. In our line of area, the risk behaviors that we monitor are not necessarily so obvious from the aggregate data, and we need to study these very carefully,” he said in an interview.

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