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12-Aug-02 Credit card issuers in Hong Kong and Singapore take different routes in the face of mounting bad debts Hong Kong, 12 August 2002 – Two recent and separate studies into the Hong Kong and Singapore credit card markets show stark differences in strategy by foreign bank credit card issuers in these two financial centres. According to recent research by Fusion Consulting, a business intelligence consultancy, Hong Kong’s major credit card issuers have been making efforts to curb their rising Non-Performing Loan (NPL) level by becoming more stringent in issuing new credit cards. Said Ms. Marine Mallinson, head of the Financial Services practice at Fusion, “We interviewed all the major card issuing foreign banks in Hong Kong over the last 12 months, and found that every one of them had been reviewing their policies to require more comprehensive applicant information before new credit approvals are made.” Bad debt has long been a problem for card issuing banks in Hong Kong, although not much real effort has been made to control the worsening situation. Until recently, bank issuers here have even been accused of being overly lenient in their card application policies. In the past, the revenue generated from lucrative Annual Percentage Rates (APRs) more than compensated for the write-offs from bad credit debts. However, the recent economic downturn accelerated the rise of bad debt. “Recent credit card write-offs are now as high as eight per cent” according to Ms Mallinson, “and steps taken by various bank issuers to control this undesirable increase vary, depending on individual banks’ history in controlling bad debt and their growth plan.” Several foreign banks have taken drastic measures to curb credit card bad debt, including adjusting credit limits downward by as much as 20 percent or closing card holders’ accounts. One major bank said it may now consider closing a card holder’s account if no payment is made within 90 days, for example. A more conservative issuer estimated that its write-offs amount to less than one percent, and that the bank therefore need not implement any drastic measures. It has, however, effectively cut back on growth plans. Contrast this to the 353,500 new credit cards, both main and supplementary, that were issued in Singapore last year - a hefty 54 per cent increase over the 229,500 new cards issued in 2000. According to a study by the Nanyang Business School in Singapore, on the demographics of credit-card usage in Singapore, the main driving factor behind this has been competition amongst foreign banks such as HSBC, Maybank and Standard Chartered, which have been pressed to offer zero-interest installment facilities and higher credit limits, while waiving joining and annual administration fees. Not surprisingly, bad debts rose 28 per cent to S$79.1 million in 2001. They also surged 58 per cent year-on-year in the second quarter of 2002 to S$32.7 million. “It would be interesting to see how the two markets evolve over this year. We anticipate that some banks in Singapore will have to completely rethink their strategies within the next quarter” concluded Ms Mallinson of Fusion Consulting. About Fusion Consulting For more information, please contact Fusion Consulting at
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