Coffee Club Tuesdays with Pia Arellano

Quality conversations with leading lenders

Coffee Club TUesday is not a platform to promote the products and services of TransUnion. Instead, we draw upon our considerable local and global research, insights and expertise to guide quality conversations, inspire exciting ideas and practical actions, and inform successful strategies to support businesses and their customers. We call this Information for Good^®.

(Full disclosure: The insights we gain from listening to and engaging with our top banks, leading lenders and digital disrupters are invaluable in developing our offerings to serve and support the industry.)

A brief history of the future

At our inaugural event, we took a step back to better understand the historical perspective of where we are today before looking forward to where current and emerging behavioral and product development trends seem to be heading. This exercise had nothing to do with nostalgia and everything to do with establishing a baseline for what we can expect.

A recent report from Forrester Consulting^[1] suggests the unprecedented uncertainties of the 2010s are set to accelerate throughout the current decade, and the businesses that survive will be those that demonstrate constant agility and adopt emerging technologies.

A constantly unprecedented landscape

We agree with the above notion. In such an ever-evolving business environment, predicting and navigating the unprecedented requires sophisticated solutions strategically aligned and automated for rapid, relevant deployment.

As we revisited the retail lending trends that shaped the last decade, we noted a high sensitivity to external factors. Prior to the pandemic, influences included shifts in the interest rate, inflationary responses, impact of severe climate events, technological disruption, and local and global politics. These are constants of change we need to plan for in any future.

Current trajectories

• YTD demand for credit increased ~ 30% over comparable snapshots in 2019, 2020 and 2021
• Loan originations recovered around ~ 20% in 2021 over 2020
• Comparisons showed stabilizing vintages of loan originations from the second half of 2021

We discussed data suggesting the Philippines will emerge from the pandemic strong this year. We saw GDP growth of 5.6% in 2021, reflected in a robust uptake in retail lending. Total loan originations grew 34.6% in 2021 compared with a 50.7% decline in the previous year. Demand from the NTC segment is steady, and we expect an increase in low-risk applications.

However, the increase in loan originations has not equaled credit demand. Approval rates are down as lenders remain cautious, mostly granting credit to metropolitan applicants with prime and above risk profiles. A significant market has shifted from cards to personal loans serviced by FinTechs.

Discussion and decisioning

In the conversations that followed, there was a general agreement sustainable growth goes beyond acquisitions to include the entire lifecycle of customer engagement. Maintaining portfolio quality is as vital as managing risk in new loan originations. The continued emphasis on approving consumers with established credit could harm credit velocity, leverage and exposure.

Positive probability

In unpacking our latest data, we shared insights around the emerging risks and underlying opportunities in the new Philippines lending ecosystem. Although growth is never certain, we believe it becomes more probable with the right strategies. Risk-adjusted growth opportunities could help drive retail lending. Any strategy in the new normal must include a redefined attitude and approach to monitoring, managing and mitigating risk. And the increase in applications from viable, thin-file consumers can be better addressed to benefit the industry and the nation.

^{1 Four Key Trends That Will Impact Tech Strategy Decision-Making}