Are Malaysians Over-subscribing to Credit Cards
“A well-informed consumer who understands the limits and appreciates the convenience of credit is certainly better for the industry ……. there is no lack of effort on the part of financial institutions to improve consumer understanding on the role of credit and how to use it wisely.”
Competition
within the credit card industry has been rapidly increasing over the past few years. Card issuers have come up with various innovative methods to promote their cards such as setting up booths in shopping complexes, introducing new co-branded cards and offering attractive promotions. With such intense focus and competition for this business, it is not surprising that the public is beginning to think that banks are “dishing” out credit card to anyone who qualifies, without regard to the individual’s ability to manage such credit. And some quarters have started voicing concerns over the perceived growing indebtedness of young families and the risks of Malaysians falling into debt that has come to characterise numerous developed economies.
With many Malaysians having more than one credit card, indeed, some have a stack of them, are we at risk of living on credit? Analysing the numbers Recent personal experiences of most Malaysians, seem to indicate that we as a society, may be on the verge of living on credit. However, anecdotal evidence sometimes gives incomplete pictures. When the statistics compiled and published by Bank Negara Malaysia are analysed, the picture that emerges is quite different. In a nutshell, as shown in Table 1, while the absolute numbers of principal credit card issued have risen by 2.72% at the end of Q1 2006, the total outstanding balances to the card holders have fallen 0.94% at the end of the same period.
Table 1: Growth of Principal Credit Card Holders, Amount of Credit Line Extended & Total Outstanding Balances. (From June 2005 to March 2006 - A Quarter on Quarter comparison) Q2 2005 Principal Card Holders (mil) Amount of Credit Line Extended (RM mil) Total Outstanding Balances (RM mil) 5.82 Q3 2005 6.08 Growth 4.47% Q4 2005 6.62 Growth 8.88% Q1 2006 6.80 Growth 2.72%
51,263.50
53,432.60
4.23%
57,130.30
6.92%
60,002.90
5.03%
12,942.10
13,653.60
5.50%
14,569.80
6.71%
14,432.60
-0.94%
4 Balanced View
Table 2: Growth of Principal Credit Card Holders, Amount of Credit Line Extended and Total Outstanding Balances. (From 2002 to 2005 -Year on Year Comparison) 2002 Principal Card Holders (mil) Amount of Credit Line Extended (RM mil) Total Outstanding Balances (RM mil) 3.63 2003 4.22 Growth 16.25% 2004 5.37 Growth 27.25% 2005 6.62 Growth 23.28%
29,924.10
35,853.00
19.81%
43,869.30
22.36%
57,130.30
30.23 %
9,373.60
10,506.70
12.09%
12,308.50
17.15%
14,569.80
18.37 %
The statistics in Table 2, which shows the growth trend of credit cards since 2002, show that while the overall number of principal credit card holders in 2004 rose 27.25% from 2003, the percentage growth dropped slightly to 23.28% in 2005. Likewise, while the total outstanding balances at the end of 2005 rose, its rate of increase at 18.37% was lower than the rate of increase in the amount of credit line extended at 30.23%. The Roles of the Issuer and the Card Holder Contrary to the belief that card issuers are simply “dishing” out credit cards to the man in the street, the issuers are always cognisant of the educational role they have to play while growing their market share. A well-informed consumer who understands the limits and appreciates the convenience of credit is certainly better for the industry than a delinquent card holder. And there is no lack of effort on the part of financial institutions to improve consumer understanding on the role of credit and how to use it wisely. Educating the Cardholder Walk into any banking hall, in any small or big town, and you will find no shortage of brochures and pamphlets on the bank’s range of products. Of course, the aim of the banks is to market their products to the consumer, but the literature is always educational as well, explaining in detail how the products work. In addition to the efforts of the individual banks, The Association of Banks in Malaysia and Bank Negara have also published a series of articles on financial services and products, including the credit card, to educate the consumer. These articles are available at www.bankinginfo.com.my . Consumers who are considering applying for a credit card should most certainly log on to this website and read the articles on credit cards. Among others, you will find information on the following:• • • • • • • What is a credit card and how it works The application process The charges applicable for credit cards Tips on shopping for a credit card Tips on minimizing credit card charges How to avoid being trapped as a borrower How to prevent credit card fraud
The bankinginfo website also provides answers to some frequently asked questions such as what you should do when there are irregularities in your credit card statement and whether you would be liable for unauthorized transactions. Recent Initiatives by the Regulator As the regulator, Bank Negara has provided operating guidelines for issuers but its recent initiatives has focused on the consumer. In April it added another facet with the launch of the Agensi Kaunseling Dan Pengurusan Kredit (Credit Counselling and Debt Management Agency or CCDMA). Bank Negara said the establishment of the agency is part of the efforts towards building a comprehensive consumer protection framework and to proactively ensure the sustainability and resilience of the household sector. Wholly-owned by Bank Negara, the CCDMA provides advisory, counselling and assistance to individuals on areas relating to credit, financial management and education as well as on debt restructuring. The services are provided free of charge. The Agency also provides eligible individual borrowers access to assistance in restructuring debts relating to housing loans, hire purchase, credit card, charge card and other personal loans that have been obtained from institutions regulated by Bank Negara. Mohamed Akwal bin Sultan Mohamad, the Chief Executive Officer of the Agency in an interview with the media in June, made a pertinent observation. He said the Agency’s experiences showed that there have been instances where consumers of several credit cards do not realise the consequences of uncontrolled spending until their bills had run into thousands of ringgit. This brings us back to the key point. That is, no matter what the authorities and the issuers provide in terms of rules and guidelines on the use of credit, the responsibility of maintaining good credit standing, ultimately lies with the card holder. Getting out of debt can be a long and arduous journey. Card holders should therefore always plan their spending wisely and exercise due care when using their credit cards.
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