Tighter credit card (Min Rm2000 per month) rules to have marginal impact

The tightening of credit card rules will likely have a marginal impact on consumer spending and banks' loan growth, analysts said.

"We believe new credit card rules will have minimum impact on the banking sector as the new rules were not implemented on cardholders of all income groups," MIDF Research said in a report yesterday.

However, it said the new rules would reduce the number of cards in circulation, issuance of new cards and credit card debt with cardholders' outstanding balance exceeding two times the limit set by the central bank.

MIDF Research noted that income contribution from credit cards is not substantial since the total contribution of credit card outstanding towards banking system loan only stood at 3.4 per cent as at end of January 2011.

"The only setback for banks is slower growth of the market segment, which offers a higher lending margin compared to other loan products," it said.
OSK Research Sdn Bhd said the new ruling, which limits the number of credit card issuers to just two for new customers, is unlikely to affect spending materially as most card holders would have consolidated their cards to just two to three core cards since the RM50 service charge came into effect in January 2010.

"We maintain a buy on the sector given that loans growth remains largely intact at a forecast of 9 per cent to 10 per cent, where the boost from Economic Transformation Programme (ETP)-related loans and fixed-income securities have yet to be imputed into our loans and non-interest income growth assumptions," it said.

MIDF Research believes that the implementation of the new rules will strengthen non-performing loan (NPL) ratio of credit cards.

As at January 2011, credit cards' NPL were maintained at 1.8 per cent and accounted for 2 per cent of banking system NPL, noted the firm, which maintained its positive call on the sector.

AmReseach Sdn Bhd said credit card outstanding had continued to rise to about RM30.4 billion currently from RM26.4 billion as at end-2009, despite the imposition of annual government tax of RM50 per card last year.

However, in terms of credit card amounts, which are overdue for longer than the current payment period, it is only about 8.1 per cent of overall credit cards outstanding as at end-January 2011 - an improvement from about 9.1 per cent in 2009.

This, it said, would mean that more than 90 per cent of the credit card outstanding amount is current and settled within the month.

"On balance, overall credit cards' contribution to overall loans remains small and at manageable levels. Thus, we believe the latest ruling is more preemptive in nature," it said.

HwangDBS Vickers Research Sdn Bhd said there may be a mild impact on credit card fee income as a result of the new rules but were unable to quantify presently.

It noted that Hong Leong Bank and EON Cap have the largest proportion of credit card receivables with respect to total loans at 5.8 per cent and 4 per cent respectively as at December 2010.

However, by market share, Maybank and CIMB top the charts at 17.6 per cent and 16.5 per cent respectively.

Source: Business Times, 22 March 2011