Distressed Filipinos growing dependent on salary loans

More and more Filipinos are drawing loans against their future salaries to raise funds for emergency medical care, education, household bills and other personal expenses especially with the challenging environment caused by the prolonged COVID-19 pandemic.

The salary loan market in the country has grown by 9.2 percent from January 2020 to June 2021 and is likely to reach P224 billion by the end of this year, based on a research issued by Singapore-based fintech group UnaFinancial.

This year, this segment is projected to grow by 3.2 percent from the end-2020 total salary loan portfolio of P217 billion, bucking the downturn in the overall loan portfolio of banks.

Outstanding loans of universal and commercial banks declined by 0.7 percent year-on-year in July, with consumer loans to residents falling by 8.2 percent, according to the Bangko Sentral ng Pilipinas (BSP).

Emergency expenses

Based on the household final consumption expenditure of P13 trillion in 2020, each household in the Philippines is estimated to spend about P596,300 per year or about P49,700 per month, according to the research.

Those with household income below the average consumption expenditure formed the potential base of the salary loan market, UnaFinancial said. In the event of an emergency or loss of a job, these are the consumers who may need to borrow to cover their expenses.

Citing data on wages for 2021, 50 percent of employees in the country receive less than P48,200 per month. Therefore, UnaFinancial estimated that about 22.7 million Filipinos would potentially be salary loan (SL) clients, including those working in state, private and public enterprises, as well as self-employed people working informally or temporarily.

“In the Philippines, the SL market has been developing since 2014 and is now quite mature,” the research said, noting that more than 15 large financial institutions were offering this product as of end-June.

Based on BSP data as of end-June, the volume of banks’ SL portfolio stood at P215.4 billion, representing 2 percent of the total loan portfolio of the banking system.

UnaFinancial noted the country’s unemployment rate was on the decline after a record jump in the second quarter of last year to 17.7 percent. As of June 2021, the jobless rate has settled at 7.7 percent.

“Thus, the base of potential SL consumers is steadily growing,” the research said.

It also cited the rise of digital banks and online-only lenders. “This leads to both increasing the supply of the SL market and improving the quality of this product,” it said.

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