Credit Costs Surge: Relief Ahead Amid Rising Defaults in Card Sector

A recent Phillip Capital report reveals that credit costs in the credit card sector are peaking, driven by increased delinquencies. Despite this, corrective measures and satisfactory performance in new cohorts promise stabilization. However, the microfinance sector anticipates slow growth due to regulatory impacts and financial stresses.

A report from Phillip Capital forecasts that the overall credit costs in the credit card segment are set to peak in the coming quarters. The sector has been grappling with financial stress over the past several quarters, attributed to rising delinquencies and credit costs.

The report states that while the performance of new customer cohorts remains satisfactory, the industry, excluding top private banks, has experienced a substantial increase in credit costs—with some lenders facing rates as high as 10 percent. This underscores the financial challenges many institutions are enduring due to escalating defaults.

Industry experts have noted that banks began implementing corrective measures after regulatory adjustments increased risk weights on unsecured businesses like credit cards. These efforts aim to mitigate risks and bolster financial stability. The report is optimistic, expecting credit cost pressures to ease within two quarters, which could signal financial stabilization for banks. Meanwhile, the microfinance sector struggles with slow growth, pressured by regulatory dynamics and renewed financial stress post-COVID-19.