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Credit cards were slowly but surely finding a place in consumers’ hearts in recent years, thanks to a combination of banks’ aggressive push, a growing aspirational middle-class population and increasing awareness of the convenience the payment tool provides.
Banks too were all too willing to issue credit cards, which carry one of the highest interest rates. But the global coronavirus pandemic has now left them on pins and needles.
They are now bracing for a double hit: transaction volumes diving and delinquencies rising as unemployed and underemployed consumers lose the ability to pay back revolving debt taken on during better times.
Since the countrywide movement control order was put in place on March 26, credit card usage has nosedived more than 50 per cent as almost all restaurants and retail points are closed, according to bankers.
And this outbreak could not have happened at a worse time for credit card issuers.
“We usually enjoy most business during Ramadan every year. But this time is completely different,” said Mashrur Arefin, managing director of City Bank, which accounts 35 per cent of the credit cards in circulation, the highest.
Last Ramadan, City’s credit cardholders had spent Tk 620 crore.
To turn the tide, Standard Chartered Bangladesh, which accounts for 14 per cent of total credit card transactions in the market, has rolled out promotions to tempt cardholders to splurge, according to Sabbir Ahmed, its head of retail banking.
The British lender’s clients can enjoy 5 per cent cashback from selected retail points.
And those who would be unable to pay their instalments on time would get a debt restructuring facility, he said.
But the possibility of missed instalments is looming large on most lenders’ minds.
“We are struggling to recover the funds from cardholders,” Arefin said, adding that in the last one month the bank’s overdue payment from cardholders has increased more than seven times.
City is now considering requesting the Bangladesh Bank to follow the same classification and loan provisioning policies as term loans for credit cardholders too.
For term loans, non-payment of instalments for a straight nine, 12 and 18 months would land the accounts in the sub-standard, doubtful and bad categories respectively.
Mutual Trust Bank is now brainstorming on how to facilitate many of its cardholders to pay their instalments on time, said its managing director Syed Mahbubur Rahman.
“We will scrutinise the clients’ attitude on a case-to-case basis. The bank will block the delinquent clients if required.”
The bank, which has issued 60,000 cards and has Tk 300 crore outstanding from this segment, is worried about recovery in the days ahead as many clients would lose their ability to pay back the funds, Rahman said.
“We will offer equally monthly instalment facility for the clients such that they can comfortably repay the loans,” he added.
Dhaka Bank, which has 15,000 cards in circulation, has almost stopped issuing new credit cards to avoid defaults, said its Managing Director Emranul Huq.
Brac Bank, which is holding the second position in term of issuing credit cards in the market, has also faced difficulties to recover the loans from cardholders, said Md Mahiul Islam, its head of retail banking.
The bank, whose card transactions have declined to one-third in the last one month, has Tk 660 crore outstanding from its 178,000 credit cards, he said.
To protect the cardholders from financial ruins, the BB though has taken a host of measures.
Lenders are not allowed to impose any late payment fees on credit cardholders from March 15 onwards and they have been asked to follow the simple interest rate model instead of the earlier method of the compound interest rate.
It has also asked banks not to consider cardholders as defaulters if they fail to repay instalments until June 30.
“This is all well and good. The question is when this is over, do those loans start paying again and it’s fine. Or, is there going to be a big wall of charge-off?” said a bank MD requesting anonymity to speak candidly on the matter.
(DT)
