Photo courtesy of Hey Gem

I think another reason could be the fact that it’s almost becoming a no-brainer to get a credit card these days, and on top of that, the limits given to credit card holders doesn’t really commensurate with their level of income (which directly affects their repayment ability). It’s quite common for an individual who earns RM2,500 a month to be allowed RM15,000 limit of ’swiping facility’, which is obviously very tempting.

(Business Times) Total outstanding balances due from cardholders in the first four months of 2009 for payments in the near term rose as more cardholders face difficulties in servicing their credit card payments on time in an environment of a global economic slowdown.

According to Bank Negara Malaysia statistics, total outstanding balances for the period of three to six months due from cardholders rose 15% in the first four months of 2009 to RM2.12 billion from RM1.84 billion in the period of September to December of 2008.

Compared with the corresponding period a year earlier, the outstanding balances were also 15% higher.

For credit card outstanding balances owing to banks for less than three months, the amount rose to 6.3% to RM8.18 billion in the period of January to April 2009 from RM7.69 billion in the last four months of 2008. The outstanding balances were up 7.7% against RM7.59 billion a year earlier.

Outstanding balances due from cardholders for more than six months rose 13.3% to RM213.3 million in the first four months of 2009, compared with RM188.2 million for the period of September to December 2008.

Nevertheless, year-on-year, the amount of outstanding balances owed by credit cardholders fell 11% from RM239.7 million.

AmResearch deputy research head Fiona Leong said the rising outstanding balances due from credit cardholders in the near term did not necessarily mean most of them would turn into non-performing loans (NPLs).

She said currently, the percentage of NPLs against outstanding credit balances stood at 2.6%, which was still small.

??o doubt, cardholders are taking more time to settle their credit card bills, especially under such economic environment. But, not all of this amount will turn into NPLs, as the amount owing to banks would still be considered as performing loans as long as cardholders are able to service the minimum amount each month, such as the interests of the outstanding balances,??she told The Edge Financial Daily here last Friday.

She added that as the number of retrenchments appeared to have eased, the outlook on NPLs would no longer be on a deterioration mode. ??ence, we should not see NPLs rising so much after all,??she said.

Industry observers said banks had already anticipated that credit cardholders might face more difficulties in servicing their debt since last year, as unemployment soared while industrial output dipped.

Recently, US bank JPMorgan Chase chief executive Jamie Damon warned that losses on the credit card portfolio of Washington Mutual, the troubled bank that JPMorgan acquired last year, could climb as high as 24% of the total by this year-end.

However, an industry observer said local banks were not expected to face high credit card losses, as the country was not impacted in the same manner as the US, while local banks??net NPL ratio had held steadily at 2.2% currently.

To help credit card holders better manage their minimum repayment to banks, the Association of Banks in Malaysia (ABM) had revised downwards interest rates of local credit card charges in February.

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