Lenders tighten credit card curbs after HKMA reforms

Customers with bad debts will see fund limits cut or accounts terminated under reforms imposed by Monetary Authority

PUBLISHED : Wednesday, 03 July, 2013, 12:00am
UPDATED : Wednesday, 03 July, 2013, 5:10am

Banks will cut credit card limits or terminate the accounts of people who accrue bad debts under reforms to card fees and rates imposed by the Hong Kong Monetary Authority.

Banks would be less willing to tolerate new bad debts from credit cards under the reforms that restricted fee income from cards, said Maggie Ng Yeung Yuk-yu, the managing director of cards and unsecured lending at Citibank, one of the top five card issuers in the city.

Lowering credit limits, or transferring the card debts to personal loans with higher interest rates, or terminating the cards were options, Ng said.

The bank launched yesterday its third credit card in the city this year.

"Some marginal card holders are likely to be expelled when the market turns bad," Ng said.

People who were often late in paying their bills and had applied for bankruptcy might be classified as marginal holders, she said.

In order to improve consumer protection and the transparency of the credit card business, the Hong Kong Monetary Authority required banks to give a longer period of notification to customers on increases in card retroactive rates - interest rates applied to purchases made in the past.

Banks also will not be allowed to impose multiple fees for late payments.

The number of credit cards in circulation in the city is 17.6 million and each eligible holder may have four cards on average.

The credit cards reform would put pressure on revenue from cards, said a senior executive at a bank who declined to be named.

He said it was normal practice for banks to reduce credit limits or cancel the cards when the economy turned bad, but smaller banks might find it more challenging to maintain their portfolios during an economic slump.

DBS Bank said earlier interest income from credit cards fell after the authority's measures were imposed.

"The returns from credit cards were rich in the old days but are now capped by the measures," Ng said, adding the industry might have to expand into other businesses, such as unsecured loans and mortgage lending.

The prudent measures could protect the banking system, she said, but credit contraction would be more serious and spread to individuals.

The charge-off ratio remained at 0.45 per cent in the first quarter, Ng said. It has been as high as in the double digits in the past.

Ng said Citibank would reveal plans on near-field communication, a new payment method using smartphones to make purchases, in the short term. However, as each transaction is limited to HK$500, she expected the new feature would not generate a lot of revenue.

The authority has implemented 31 enhanced credit card practices since 2011 to bring Hong Kong into line with Britain and the United States in terms of good practices.