Banks oppose cap on credit card charges — Montinola

The Bankers Association of the Philippines (BAP) believes that setting a limit on credit card charges could mess up several government programs that seek more Filipinos in financial sector services.

BAP president Aurelio Montinola III said in an interview that history has shown that any effort to cap interest rates only results to a decline in the number of borrowers as banks sift through clients’ financial qualifications.

“The moment you cap interest charges, you will have financial exclusion instead of financial inclusion because creditors will only lend to people they believe are able to pay the interest charges,” Montinola said.

Financial inclusion is an ongoing government effort to attract countryside borrowers into the formal financial system.

At present, there are legislative plans to set a limit on credit card charges to 1 percent a month instead of market-determined rates.

It is a shame that legislators have to intervene and say that credit card charges should not go beyond a certain boundary, Montinola said.

Credit cards represents a credit tool for even the most ordinary Filipino, he pointed out.

“Everyone should really look at the issue from a broader perspective. Otherwise, the people will just go to the pawnshops, to the microfinance lenders, or even the informal channels,” he said.

Government estimates show that there are 5.7 million credit card holders in the Philippines.

Montinola, who is also president of the Bank of the Philippine Islands, said that the bank seeks to expand its credit card borrowers to around one million by the end of 2010 from 920,000 at the start of the year.

He pointed out that while credit card holders normally pay on installment basis, there are also other credit card holders who are “transactors” and pay for their purchases in full.

Transactors are typically given 30 days to pay back credit card purchases interest-free during the period, he said.

“I think there’s a lot of focus on what the highest rates are. But the blended rates are very reasonable,” Montinola said.

“There are so-called introductory rates which charge lower rates ranging from 12 to 18 percent a year. I should say card rates are a blend,” he added.

Regulators cite credit card charges of 46 percent or even 65 percent per year or a monthly charge of 3.75 to 5.4 percent a month. — JE/VS, GMANews.TV