Consumer loans now banks’ bread and butter—BSP data

By Jerry Maglunog 

Despite their generous-sounding pitches, consumer loans give banks the biggest margins on lendings. An average of 15 percent to 20 percent in interest goes to a bank that approves either a car, housing, salary or personal loan. 

Among these classifications that fall under consumer loans, car loans registered the most aggressive rise, climbing 26 percent in terms of value as of end-July to P244 billion. Data from the Bangko Sentral ng Pilipinas (BSP) also said the increase in car loans among the four classified type of loans is almost at similar rates with housing loans rising 27 percent.

This type of loan is also the most preferred by the BSP as it is a loan where the borrower is almost 100- percent sure of paying the amount he or she owes the bank.

“In almost all cases, cash flow is more important than collateral which is actually just optional,” BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. said.

BSP data showed car loans as having the brightest prospects among those classified as consumer loans.

“Most people usually produce their own vehicle first before acquiring a house. It’s a common thing to see young people celebrate if they are able to produce a new vehicle,” an official of the Chamber of Thrift Banks (CTB) said.

The chamber’s president, Rommel Latinazo, said that margin at consumer loans, especially in car loans, is the highest among the classified types of this lending activity.

“Consumer business continues to grow,” Latinazo, president and chief executive officer of Rizal Commercial Banking Corp. Savings Bank, said.

Lourdes Jocelyn Pineda, president of Rizal Microbank, also a thrift bank, said the key to comfortable margin in consumer loans is a strict credit underwriting.

“This is unlike microloans that you need to thoroughly scrutinize their paper,” Pineda said.

The banker said the truthful credit underwriting of those seeking loans is an effective way to avoid default and eventually totally being unable to repay their obligations.

“The majority listen to these people wanting to own a new car. Credit underwriting becomes less stressful if you know the clients’ ability pay,” Pineda added.

So far, there are 55 banks that are members of the group that make money directly from clients who use their funds in providing these types of loans.

“Ability to pay is really the first red flag you must see early to avoid nonperforming loan rise,” the CTB president said.

Pineda, however, admitted that car loans are among the most profitable businesses for banks. He didn’t give a categorical answer that this type of loan will soon chalk up most of the resources allotted to this type of loan.

Very recently, the country’s 12th largest bank in terms of assets, United Coconut Planters Bank (UCPB), said it raked in P1.3 billion in earnings in the January-to-June period.

Most of the gains were from consumer loans, not commercial loans , which universal and commercial banks specialize in.

Its net interest income rose two percent from a year ago, despite a three percent drop in its net loans receivable. UCPB said its loan interest income increased by 5 percent, due to the higher yields earned from its consumer loan portfolio. The lender did not give exact figures.

The bank’s total non-interest income jumped 3.2 percent to P1.2 billion as both service fees and trading incomes increased by 7 percent. UCPB’s consumer loans grew by 28 percent in the first half, although its corporate and commercial loans fell by 13 percent amid “continued liquidity in the domestic market.”

Its total deposit levels also improved by more than 6 percent, marked by a 14-percent improvement in its low-cost current account, savings account (CASA) levels by P19 billion to P157 billion, partially offsetting the higher costing time deposits, which declined by 11 percent to P50 billion, thus reducing deposit interest expense by more than seven percent.

The bank’s operating expenses were up only 2 percent, even with the 10-percent increase in manpower cost as it provided improved employee compensation and benefits, and an increase in consumer business related headcount.

Meanwhile, its net non-performing loans (NPL) “remained controlled” at less than 3 percent of gross loan portfolio on the strength of improved credit quality processes and risk management particularly in the consumer lending business, UCPB said.

NPLs are obligations that remained unpaid for at least 30 days after reaching their due date.

“There is a way that understands us and that is not via a popular mall,” the observer explained further.

But for Alberto Suansing, a road expert and former executive director of the Land Transportation Franchising and Regulatory Board and Land Transportation Office (LTO), a lax credit underwriting for car loans is bad for the country’s streets.

He said thousands of cars and sports utility vehicles are added to roads everyday, but the LTO is very slow in phasing out old vehicles. “We will soon become a big parking lot,” he said.