Banks slash card rates amid tight competition

By Ruben Hortelano

04/29/2008

Credit card companies are trying to outdo each other in lowering rates amid fierce competition among various banks and financial institutions that co-brand with such well-known card names such as Visa and Mastercard.

Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr., said credit card rates have fallen significantly in recent months, particularly since January this year.

“Interest charges have been falling since 2006 or 2007,” Tetangco told reporters.

Card charges now range from 2.25 percent to 3 percent a month or up to 36 percent per annum, latest data from the BSP show.

Tetangco said the more aggressive banks have slashed their card charges in recent months, trimming down rates further.

“Aside from low interest charges, some banks give cardholders no-frills cards and others have options like reward points,” Tetangco said.

Tetangco said card issuers were motivated to drop their interest charges as domestic interest rates have fallen significantly.

The government’s borrowing rate has fallen on the back of more or less sustainable revenue flows, allowing it to have a firmer grip on the nation’s budget and therefore its need to borrow.

With less compulsion to borrow, interest rates have to drop.

The banks themselves have been driven by the need to distinguish their products from all others in the market and this explains in part the drop in interest charges.

Only a fraction of the working population, around four million in all, have credit cards.

The number of card issuers are lower than 20, according to the BSP.

But because private consumption was the main driver to last year’s 7.3-percent growth, the upside to credit card usage this year and next was seen to grow at a frenetic pace as well.

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