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Lenders develop cold feet on credit cards

By Wang Bo (China Daily)
Updated: 2009-09-10 08:50

Banks have stopped aggressively promoting their credit card business. [China Daily]

Learning from the harsh lessons of the massive credit card defaults in the US, Chinese authorities started taking steps in the first half of the year to reduce the plastic flood in the country.

In a notice sent to commercial lenders, the China Banking Regulatory Commission (CBRC) asked banks to curb credit card issuances and carefully appraise the applicant's creditworthiness before issuing cards.

The regulator also urged banks to stop setting quotas for credit card sales personnel and stop issuing cards to students under the age of 18.

That the regulator's warnings have borne fruit is clearly seen from the lower number of cards issued by banks in the first half and the lower income earned by credit card sales personnel during the period.

Zhang Tianyu, a veteran credit card salesman who works for a Beijing-based Chinese lender, said his monthly wages fell nearly 10 times to 2,000 yuan from nearly 20,000 yuan two years back.

"The risk control department is more vigilant than ever. Though I still bring in huge number of applications every month. Most of them are rejected as they fail the mandatory credit checks," Zhang said.

With concerns mounting that the high credit card debt could trigger a new economic slowdown, many Chinese lenders have also stopped aggressively promoting their card business.

"We have noticed the underlying risk of aggregate defaults, and thus our policy on credit card issuance has become stricter than ever," said a source with the credit card center of China CITIC Bank.

"At present, only 30 percent of the credit card applications are approved, whereas in the past the approval ratio was about 65 percent to 75 percent," the source said.

The central bank also warned about the underlying risks of substantial increases in outstanding credit card debts in its latest quarterly payment system report.

During the first quarter, credit card balances that were at least six months overdue reached 4.97 billion yuan, up 133.1 percent from a year earlier, the report said.

"Banks should pay special attention to the potential risks arising from the growing credit card payment defaults before they expand the business," it said.

China saw its credit card business blossoming in recent years as more banks realized that it would be a major source of revenue.

As of March, Chinese banks had extended 150 million credit cards, up 42.9 percent year-on-year. That increased the number of credit cards held by each Chinese consumer to 0.11, compared to an average of 4.39 credit cards held by Americans, according to central bank statistics.

Though credit cards are an alternate source of revenue for banks, it still has excellent potential and that explains the rapid increase in the number of cardowners.

The eagerness to get their fingers in the credit card pie saw many banks lower issuance requirements and go easy on credit checks. Even students with no fixed incomes were once readily issued credit cards.

But after the financial crisis, domestic lenders have slowed down their aggressive market expansion and tightened the requirements for credit cards.