"Not even bank robbery can match that kind of profit-making by banks from their credit card operations—a no-sweat business."
"Not even bank robbery can match that kind of profit-making by banks from their credit card operations—a no-sweat business."
Unacceptable. That is how Bangko Sentral ng Pilipinas Governor Benjamin Diokno calls the onerous 42-percent-a-year finance charge (3.5 percent a month) slapped by banks on unpaid bills and cash advances of credit card holders. So expect a 43-percent lowering in card finance charges, from 42 percent annually to just 24 percent annually—in two weeks, the promise of Governor Diokno.
Per BSP data, banks have total credit card receivables of P446 billion. Apply 42 percent of that and you get P187.32 billion in whopping revenues for the banks as finance charges. Apply 24 percent of P446 billion and you get P107 billion. Deduct P107 billion from P187.32 billion and you get P80.32 billion—that is the amount card holders will save, in theory, if credit card finance charges are cut to just 24 percent.
Actually, the 42 percent is just a starting rate. The credit card companies charge an additional 5 percent for failure of cardholders to settle bills on time, which usually happens because the banks send their bills late or not at all (there is a fee of P200 for sending those bills), or use intricate passwords before the cardholder can decipher his balance due online. Also, in the statement of account, the card number is not indicated, only the “customer number” is shown; so the cardholder doesn’t know which card he is actually trying to pay, if he has many cards.
The 5 percent add-on makes the monthly interest rate 8.5 percent (3.5 plus 5) or an effective annual interest rate of 102 percent; the banks double their money in just one month.
Not even bank robbery can match that kind of profit-making by banks from their credit card operations, a no-sweat business. If you assume credit card bad loans average 5 percent of receivables, 102 minus 5 still leaves the banks with 97 percent return.
I say the credit card companies beat bank robbers because the card firms simply use computers who think by themselves to operate like robotic Shylocks.
On the other hand, bank robbers use brain power, considerable planning and an arsenal of guns and bullets (plus masks, which are fashionable these days) in robbing a bank. Banks, when robbed, lose little, if any. They collect their robbery losses from the insurance companies. Did you notice—bank robbers always run away with “millions,” even if they actually bagged less than that?
The Philippines charges the highest credit card interest rates in the ASEAN and probably in the whole of Asia. Malaysia and Singapore charge only 15 percent per year; Indonesia 26.95 percent, and Vietnam 29.23 percent. In the rest of the Asian region, the going credit card rates range from 8.8 percent to 10.80 percent—a fourth of what Philippine credit card companies charge.
Of all the officials who came to power under President Duterte, Ben Diokno has done the most to extricate the economy from its worst recession in Philippine history.
In a series of moves, the BSP under Diokno has pumped P1.2 trillion in rescue funds to the economy which has slumped to its worst in the past six months. The idea is to pump cash into the economy so that consumers will have the liquidity or cash to spend and industries will have the capital to produce goods that consumers want.
The problem with that mechanism is that the generals under the IATF—the task force on COVID which sometimes thinks of such stupid things as requiring plastic barriers between husband and wife when riding on motorcycles (even if the couples made love the whole night before)—don’t want to cooperate.
The generals install what is called checkpoints to enforce what is called lockdowns which in turn are designed to prevent people, sick or not, from circulating in public. So while the cash is circulating, there is no crowd to capture that money and spend it. The economy is propped up by consumption—up to 73 percent of GDP. The lockdowns in effect have eviscerated that 73 percent.
In the second quarter alone, the economy contracted by 16.5 percent, the biggest contraction ever in the country’s history. The sharp decline in economic output resulted in job losses of 5 million (half the workforce is jobless, per SWS) and poverty inching back to the 26 percent of the population. Poverty incidence was hitting 16 percent when COVID-19 struck last February.
The BSP has cut the interest rate it charges banks for their borrowing overnight to 2.25 percent, what is called the policy rate. “That’s the lowest ever I have seen,” Diokno points out.
Theoretically thus, if the banks can borrow from the BSP at 2.25 percent and they add 100 percent on that, bank customers or borrowers should be paying only 5 percent for loans. So when you approach your bank, negotiate for 5 percent annual interest—instead of the usual 6 to 9 percent interest rate per year. Anything higher is probably “unacceptable.”
