Regional surveillance group AMRO has suggested that Philippines regulators consider implementing sector-specific loan limit for consumer borrowers.

The proposal aims to mitigate the risks of household over-indebtedness as credit card lending in the country continues to rise.

Following its annual consultation visit, the ASEAN+3 Macroeconomic Research Office (AMRO) stated that caps on banks’ exposure to the retail segment could serve as a safeguard against financial strain.

“To mitigate risks of household over-indebtedness, authorities may consider operationalising tools such as a debt-service ratio limit, and applying sectoral loan limits to consumer loans,” AMRO stated in its report.

The group also suggested exploring caps on fees and borrowing costs, alongside improvements to the country’s infrastructure for gauging borrower repayment capacity.

“If continued expansion in credit card loans is primarily driven by banks’ excessive objective for profits, it may also be worth considering measures such as a lower interest rate and fee cap or tiered pricing frameworks,” it added.

Data from the Bangko Sentral ng Pilipinas (BSP) indicates that retail loans rose by 23.5% to PHP 1.82 trillion in September.

Credit card receivables specifically increased by nearly 30% to PHP 1.09 trillion. This growth coincides with the BSP’s ongoing easing cycle, having cut key rates by 175 basis points to 4.75% since August last year.

While AMRO noted that the surge is unlikely to undermine the banking system’s overall soundness immediately, it warned that the rapid expansion of unsecured lending, such as credit cards and salary loans, warrants tighter monitoring compared to collateralised loans.

“Excessive expansion of consumer credit amid intensifying competition among banks… could lead to a relaxation of lending standards or a concentration of credit in certain vulnerable groups, both of which could elevate financial stability risks,” the group cautioned.

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