Credit card spending falls as consumers tighten belts
Spending through credit cards declined in September as consumers are still feeling the heat of the slower-than-expected economic recovery, while the threat of a second wave of coronavirus infections looms large.
Total card loans held by lenders stood at Tk 1,245 crore in September, down 19.78 per cent a month earlier, according to data from the central bank.
Transaction through credit cards, however, rose 23.68 per cent year-on-year. The volume stood at Tk 1,006 crore in September last year.
The spending using credit cards drastically went down in the second quarter of 2020 because of the strict restrictions on the movement imposed by the government to keep the deadly flu at bay.
In July, card transactions increased at a faster pace, which might be an indication of the pent-up demand after the lockdown eased, or an erosion of the purchasing capacity of consumers, said industry insiders.
Clients took loans using credit cards to the tune of Tk 1,252 crore in July in contrast to Tk 898 crore in June. The credit volume rallied in August when cardholders took loans worth Tk 1,552 crore to make purchases.
The figure came down sharply in September as uncertainty over the recovery from the pandemic deepened further because of a surge in infections.
"A good number of employees have lost jobs during the pandemic, which has been forced them to take loans through credit cards to survive," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
This might help show a good volume of the credit card transactions, he said.
He, however, said the economy is also in a recovery stage, which has pushed the card market to recover its business gradually.
Mashrur Arefin, managing director of City Bank, said the lender had seen a restoration of its domestic market of credit card in recent months riding on the ongoing economic recovery.
City Bank is the top player in the country's credit card market. It has issued around 5 lakh cards.
The restriction on travelling imposed by various nations has been hurting theforeign part of the credit card business since the beginning of the pandemic, he said.
"The cross-bounder transaction has almost halted. We are yet to manage our desired profit from the portion," Arefin said.
Dhaka Bank Managing Director Emranul Huq echoed the same, saying the bank has recovered its major portion of the credit card business. "The rest will depend on the economic recovery."
The issuance of credit cards has been sluggishness in recent months as banks adopted a cautious policy due to the business slowdown, said Ahsan Ullah Chowdhury, head of card and digital banking at Eastern Bank.
Banks issued 16,19,788 credit cards as of September in contrast to 16,19,359 as of August. Lenders usually issued 15,000-20,000 credit cards per month during the normal period.
"But they now verify the clients carefully to ensure their capacity of paying back loans in time," Chowdhury said.
The next year would be more challenging for the card business as the loan moratorium facility will continue until December. Many card-holders will become defaulters when the payment holiday is lifted, he said.
Eastern Bank, one of the top credit card issuers in the banking sector, has been in a good position as it always offers cards to capable individuals, Chowdhury said.
The number of credit card transactions through the bank has been on the rise as it has rolled out several digital banking products during the pandemic, he said.
Mahiul Islam, head of retail banking at Brac Bank, said clients now prefer credit cards more than in the pre-Covid-19 period as they are reluctant to visit shops physically.
"This has had a positive impact on transaction numbers," he said.
Transactions totalled 21.19 lakh in September in contrast to 18.82 lakh in August.
Although the value declined in September, the habit of using the tool will help lenders make a profit when the pandemic comes under control, Islam said.
Brac Bank, once the largest card issuer in the banking sector in Bangladesh, is also enjoying an upward trend in transactions through credit cards.
"But it will take time to recover fully from the economic hardship as this has eroded the purchasing power of consumers," he said.