Visa restrictions

Big card for a big spender

Cinema audiences got to see a lot of China Merchants Bank’s Platinum credit card in the movie, If You Are The One. The film, which broke Chinese box office records in February, was co-financed by the bank. One upshot was a number of fairly tight screen shots of its credit card, usually when the protagonist was paying his restaurant bills.

It was a savvy bit of product placement, and showed that yet again China Merchants Bank was at the forefront of the battle for credit card market share. In an earlier coup it had launched the first ‘No Limit Card’, which true to its name had no credit limit. This invitation-only product came with a Rmb10,000 annual fee, and a genie of the lamp-style concierge who could get you a reservation anywhere.

It was another sign that China’s credit card market has come a long way since Bank of China launched the nation’s first card back in 1985. With all of the major banks keen to build their customer base, the number of credit cards in China had grown last year to 140 million (by comparison: the top 10 card issuers in the US had 539 million cards in circulation at the end of 2008). The market leader in China is ICBC with 39 million cards.

However, it seems that the growth era may be losing steam. According to investigations by China Business, banks have become more circumspect about issuing new cards in the current environment. The newspaper quotes one banking insider in Guangzhou as saying: “The approval rate for credit card applications has been on the decline – it is even lower than one in 10 at some banks.”

Some of this is the result of new central bank measures to contain fraud (between April and September last year, there were 3,672 credit card related crimes, up 140% year-on-year). But the bigger concern seems to be a rise in bad debts. The head of the credit card business at one major state-owned bank forecast that its non-performing credit card rate would rise from 1% to 2% this year, based on the current trend in overdue repayments.

Another banker is worried about the rise in the number of white collar workers – who previously had good credit credit records – that are now in arrears. “This indicates the economic environment is affecting their ability to repay,” he says.

A double-whammy for the industry is that as people swipe their cards less in shops – due to the slowdown – the fee that card issuers receive for each transaction also falls; that dents another revenue stream.

The credit card turmoil in the US has come as something of a wake-up call to China’s banks. While their own situation is far from dire, they have decided to take a more cautious approach. China Merchants Bank, the second biggest player with 24 million cards, has said it will not issue any more cards in 2009, according to a report in 21CN Business Herald. Instead, the bank will move from “attack to defence” to retain its existing customer base.

The wealthiest customers are likely to provide the new battleground. Minsheng Bank reckons that its 100,000 top-tier cardholders spent almost half of the Rmb75 billion its credit card business processed last year – and with a negligible rate of non-performance. “At the high end the risk is smaller,” comments Yang Ke, the president of the bank’s card centre. Card approvals are declining, on the other hand, for students and white collar types working in industries impacted by declining exports.

But if the credit card business is entering a hiatus, bank lending certainly isn’t. The most stunning statistic of the week? Chinese banks extended Rmb1.87 trillion ($273 billion) of new credit in March, a record amount for a single month.

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