DBS says interest margin on credit cards shrinks as fee income rises

DBS Bank is earning less from interest rate differentials in its credit card business because of a rule change but income generated from fees in the same business is rising.

Ken Chew of DBS Bank's consumer division in Hong Kong said the interest margin - a measure of profitability - on its credit card business declined in the first quarter compared with the same period last year.

Since the beginning of the year, when a customer chooses to pay only part of his or her credit card bill, banks must allocate the payment to the portion of the credit card debt bearing the higher interest rate first, instead of applying it to the portion at a lower interest rate as in the past.

"The drop in interest income was partly offset by an increase in fee income [from higher spending], so overall income remained flat in the first quarter," Chew told reporters yesterday. He expected overall income from credit cards to grow more slowly this year than last year, when it rose 6 per cent from the previous year.

DBS said it would offer two new credit cards this year and was eyeing e-commerce to grow the business. Ten per cent of card spending by customers was done online.

Chew said card spending on the internet rose 24 per cent year on year in the first quarter. The average of its peers was 16 per cent.