[B-SIDE Podcast] The repayment slowdown: Insights on Filipino debt trends

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As household savings were depleted during the pandemic, more Filipinos relied on credit to manage their daily expenses.

Now, with the rising cost of living due to inflation and higher interest rates for borrowing money, consumers are struggling to repay their debts.

This reality is reflected in Collectius’ own internal data, which shows a slowdown in debt repayment rates in the first half of this year compared to 2022, Marie Alexise Charisse Arboleda, head of operations at Collectius, tells BusinessWorld reporter Keisha B. Ta-asan.

Credit card usage is also expected to increase this quarter amid the holiday season.

“During this time, many Filipinos tend to prioritize holiday spending, which includes holiday gifting, over debt repayment,” she said.

“Given the anticipation for high inflation, it is likely that consumers will spend more and we can expect to see a decrease in debt repayment levels across all consumer loans.”

Based on the latest data from the central bank, consumer credit jumped by 22.7% to P1.17 trillion from P950.8 billion a year ago, slightly faster than the 22.6% in July. Credit card loans expanded by 29.7% year on year in August.

“A slowdown in debt repayment rates does pose challenges, but may not necessarily lead to financial crisis in financial stability, especially if it is sufficiently addressed by regulatory measures,” Ms. Arboleda said.

She noted that slower debt repayments can hurt the banks and it may be harder for financial institutions to be able to lend money and provide financial services.

“But banks and other financial institutions are well capitalized in the Philippines and they generally have risk mitigation strategies in place,” she said.

“The (government) might take steps to reduce risks and support the financial system, especially during tough times, and we saw that also during the pandemic,” she added.

Separate central bank data showed lenders’ nonperforming loan (NPL) ratio improved to a four-month low of 3.42% in August from 3.43% in July.

Bad loans declined by 5.9% year on year to P442.9 billion as of end-August. However, this was 0.6% higher than P440.1 billion seen at end-July.

Collectius, a financial technology company, is one of the five Financial Institutions Strategic Transfer Corporations in the Philippines licensed to acquire nonperforming loans or assets accumulated by banks during the coronavirus pandemic.

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