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Philippines: Interest rate cap to boost credit growth – CIC
MANILA, Philippines — A cap on interest rates and other fees slapped by lending and financing companies, as well as online lending platforms for small value loans, would help spur credit growth in the country, according to Credit Information Corp.
CIC president and CEO Ben Joshua Baltazar said the country’s public credit registry and repository of credit information supports the Bangko Sentral ng Pilipinas (BSP) as well as the Securities and Exchange Commission (SEC), in the implementation of the ceiling.
“The CIC is one with the SEC and BSP in protecting the welfare of Filipino borrowers from unsustainable interest rates arising from excessive hedging and risk-provisioning during the pandemic, while improving access to credit as we work toward full economic recovery,” Baltazar said.
The BSP and the SEC have issued separate orders imposing ceilings on unsecured, general-purpose loans that do not exceed the amount of P10,000 and with a tenor of up to four months.
The BSP has set a nominal interest rate ceiling of six percent per month or approximately 0.2 percent per day for covered loans. It also set the limit on effective interest rate at a maximum of 15 percent per month or approximately 0.5 percent per day.
This includes the nominal interest rate, as well as applicable charges such as processing, service, notarial, handling and verification fees, but excludes fees and penalties for late payment or non-payment.
The regulator likewise set a five percent per month ceiling on penalties for late payment or non-payment on the outstanding scheduled amount due, as well as a total cost cap of 100 percent of total amount borrowed.
This applies to all interest, other fees and charges, and penalties, regardless of the time that the loan is outstanding.
Data showed the nominal interest rate imposed by lending companies skyrocketed to 360 percent per annum or 30 percent per month between 2016 and 2019 from 60 percent per annum or five percent per month from 2014 and 2015.
“One of our thrusts at the CIC is to educate the public on credit as an important financial tool. Specifically, we aim to correct the stigma associated with credit that it is synonymous to financial hardship, mismanagement, and vulnerability — which should not be the case,” Baltazar said.
Baltazar said the implementation of a ceiling on interest rate and other fees for small-value loans would assist borrowers in managing their payback schedule and maintain a healthy credit history as the country recovers from the impact of the pandemic.
“In the meantime, continuous improvements to the CIC database will provide lenders with better information for their credit decisioning and risk management activities, which will lead to lowering the overall cost of credit,” Baltazar said.
Source: https://www.philstar.com/business/2022/03/16/2167519/interest-rate-cap-boost-credit-growth-cic