Citibank plans to cut interest-free periods

Citibank is trying to persuade its customers to accept shorter interest-free periods on their credit cards in return for lower interest rates, as the bank tries to reduce funding costs in the face of dwindling profit margins in the lending business.

A spokeswoman at Citibank, which has almost a million credit cards in circulation, confirmed it would shorten the minimum interest-free period on selected accounts by five days to 45 days from the middle of next month.

The length of the interest-free period varies according to the statement cut-off dates on different accounts. The new policy will be put to customers selected by the bank after an internal review.

The spokeswoman declined to reveal how many accounts would be involved but insisted it would affect only customers who agreed to the change.

Analysts said the initiative would help the bank lower funding costs, which have become a key issue given the intense competition in the credit card industry. According to Hong Kong Monetary Authority statistics, the credit card rollover ratio - which measures the interest-bearing portion of total credit card spending - stood at 43.6 per cent at the end of the first quarter. This compares with levels of about 50 per cent throughout most of 2003 and 2004.

Liu Chong Hing Bank (LCHB) senior manager Brian Cheung Nam-chung likened shortening the interest-free period to charging higher interest rates.