Growing number of cardholders

Saturday March 14, 2009
Consumers readily use credit cards after relaxation on rates and charges
By ELAINE ANG and YVONNE TAN


DESPITE the notion that it is never the best of ideas to spend on credit given the costs involved, consumers appear to be doing just that in this economically trying times, based on feedback from industry players.

AEON Credit Service (M) Bhd, for example, says it noticed that consumers were buying more items on credit these days, instead of using cash.

Additionally, the recent relaxation in the interest rate and the late payment charges may encourage consumers to increase further their consumption credit patterns via the use of credit cards, according to OSK Research.

Late payment fees were reduced from a minimum of RM10 to RM5, while the maximum fees were reduced from RM100 to RM75.

The reduced rates were from 15% to 13.5% for Tier 1 credit card holders, 18% to 17% for Tier-2 and 18% to 17.5% for Tier-3. While this may enhance customer numbers, default rates remain a concern.

Citibank Bhd business director (cards and personal loans) Vipin Agrawal expects the current uncertain economic and financial conditions to definitely influence card spending this year.

“Credit card spending is more likely to be cautious and selective. Nevertheless, we do expect the number of cardholders to continue to grow, albeit at a slower pace, this year,” he says.

Amid the global slowdown, some banks have launched credit cards this year with the aim of increasing their customer base.

Alliance Bank Malaysia Bhd recently introduced the You:nique Picture Card – Malaysia’s first personalised picture credit card that comes with customised value plans offering preferred rebates, rates and rewards. Hong Leong Bank Bhd also unveiled a Platinum Business Credit Card this year.

Corporates such as Ming Heng Motor Sdn Bhd and Tesco (M) Sdn Bhd have also tied up with banks to offer credit cards to customers.

Ming Heng became the first automotive retailer to launch a credit card in the country in a partnership with EON Bank Bhd, while Tesco collaborated with RHB Bank Bhd.

OSK Research notes that while growth for unsecured loans such as credit cards and personal loans continue to be relatively high, their respective default risks have remained relatively low.

The gross non-performing loan (NPL) ratio is low at 2.5% for credit cards and 6.3% for personal loans versus household loans of 5.3%, says the research outfit.

Nevertheless, some banks do anticipate credit card default rates to grow in tandem with the more difficult economic environment, which puts a strain on the purse strings.

HSBC Bank Malaysia Bhd general manager (personal financial services) Lim Eng Seong, without revealing the bank’s default rate, says although the bank’s card default rate has not changed significantly over the last few months, the bank is bracing for more difficult times ahead due to the anticipated changes in economic situation.

“The bank has been very selective in growing its card base since 2006 and we do not foresee any changes in the bank’s credit card acquisition strategy,” he says, adding that HSBC has a credit card base of more than one million.

Alliance Bank group chief executive officer Datuk Bridget Lai says the bank’s default rate has remained stable but expects it to grow.

“It will remain manageable given our risk management system,” she adds.

She remains optimistic of the opportunities ahead and expects the bank to continue outperforming the industry as it had done in the last few years.

Malaysian credit card spending grew by 17% last year, according to Bank Negara data.

“Our receivables have been growing two to three times above market rate with significantly low NPLs,” Lai notes.

“But, as expected, when the economy turns bearish, more consumers will face cash flow constraints that will in turn curb spending and spur higher NPLs.”

She says the bank is an advocate of financial literacy – credit limits are assigned in accordance with the ability to pay, with reminder systems in place.

The bank also provides an inclusive range of structured payment products such as balance transfer and installment payment plans for those who seek flexibility and affordability.

To Lai, card acquisition, though important, is not the main driver for the bank.

“For us it is more about risk-adjusted returns and keeping our fundamentals strong,” she says.

In the past three years, the bank has also heavily invested in its distribution channels, marketing capabilities and servicing infrastructure.