Pent-up demand lifts spending through credit cards

Spending through credit cards continued to maintain an upward trend in November, a sign that clients are stepping up their consumption sidestepping the fear of economic losses stemming from the coronavirus pandemic.

Total card loans held by lenders stood at Tk 1,434 crore in November, up 4 per cent from that a month earlier and 20 per cent year-on-year, showed Bangladesh Bank data.

The rise in transactions through credit cards is an indication of a "pent up demand" in the economy as the majority of consumers had held back their spending during the lockdown and the subsequent few months, experts said.

Pent up demand refers to a situation when demand for a service or product is unusually strong.

Economists generally use the term to describe the general public's return to consumerism following a period of decreased spending.

Spending through credit cards drastically went down in the second quarter of 2020 because of the strict restrictions on movement imposed by the government to keep the deadly coronavirus at bay.

Credit cardholders registered a record amount of transactions to the tune of Tk 1,552 crore in August during Eid-ul-Azha, one of the biggest festivals for Muslims. The figure, however, came down sharply in September.

But the spending started to bounce back heavily since October.

Mashrur Arefin, managing director of City Bank, said their business from credit card has already widened more than that of the pre-pandemic level due to the pent up demand among consumers.

"We are now issuing a huge number of cards per month and the volume of transaction is also on the rise," he said.

City Bank is the top player in the country's credit card market. It has issued around 5.50 lakh cards.

The hospitality and tourism sector has recovered its business to a large extent, putting a positive impact on the spending through credit cards.

He went on to express hope that the upward trend in spending would continue in the months ahead as a good number of people have become habituated to using credit cards in recent periods in order to maintain social distancing when purchasing goods.

The fear of the coronavirus has come down as people have learnt to live with the pandemic, Arefin said.

This has helped people spend money more, he said.

Mamun Rashid, a financial sector analyst, echoed the same, saying that pent up demand has played a pivotal role in fuelling spending through credit cards.

People now avoid kitchen markets and are increasingly preferring supermarkets in order to protect themselves from Covid-19, he said.

The pandemic has also pushed the volume of e-commerce sales, making a good impact on purchases through credit cards, he said.

Mahiul Islam, head of retail banking at Brac Bank, said his bank now issues a good number of credit cards per month due to surging demand from clients.

The bank, one of the largest card-issuers in Bangladesh's banking sector, is also enjoying an upward trend in transactions through the digital tool.

People have little concern over the pandemic, helping banks strengthen their credit card business, Islam said.

The number of transactions totalled 25.58 lakh in November in contrast to 23.54 lakh in October.

Monzur Hossain, a research director of the Bangladesh Institute of Development Studies, said the purchasing power of people was getting stronger in the wake of the fast pace of the economic recovery.

This has led to an increasing trend in spending through credit cards, he said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said they too were enjoying the same experience as that of City and Brac banks.

The bank, which has so far provided 55,000 credit cards, now issues 4,000 to 5,000 cards per month.  

He, however, said there was a possibility that a good number of cardholders have been forced to depend on credit cards due to the ongoing business slowdown.

The crisis may also fuel the rise in use of credit cards as well, Rahman said.     

The issuance of credit cards was on the increase in November when the outstanding number of banks' credit cards stood at 16.51 lakh whereas it was 16.31 lakh a month ago.