Personal Finance

Credit card policies tightened

By Wang Bo (China Daily)
Updated: 2009-07-27 14:46

The first half of this year was not kind to veteran credit card salesman Zhang Tianyu's wallet.

His monthly salary shrank ten times from nearly 20,000 yuan two years ago to about 2,000 yuan this year.

The dramatic drop in income was experienced by other credit card salespeople, too, as banks backed away from a previously generous policy when it came to issuing credit cards.

The flood of easily available credit cards slowed as the global financial crisis started taking its toll on the Chinese economy last year.

"The risk control department is more vigilant than ever. Though I can still bring back hundreds of credit card applications each month, many of them cannot get through the credit checks," Zhang said.

Amid concerns that high credit card debt might trigger a new economic slowdown, many Chinese lenders have stepped back from aggressively promoting the cards.

"We have noticed the underlying risk of aggregate defaults, and thus our policy on credit card issuance has become stricter than ever," a source with the credit card center at China Citic Bank said.

"At present, only 30 percent of the credit card applicants get approved, while in the past few years the approval ratio was about 65 percent to 75 percent," the source said.

Pulling back on credit card marketing also is in response to warnings by the country's banking regulators about credit card-related risks.

In a notice sent to Chinese commercial lenders in mid-July, the China Banking Regulatory Commission, or CBRC, the country's top banking watchdog, ordered banks to tighten credit card issuance practices and carefully appraise credit ratings before issuing cards to applicants.

Banks should not set quotas for credit card salespeople and never give out credit cards to students under the age of 18, the CBRC advised.

The move followed the quarterly payment system report issued by the People's Bank of China, which warned about the underlying risks of substantial increases in outstanding credit card debts.

In the first quarter, credit card balances that were at least six months overdue reached 4.97 billion yuan, up 133.1 percent from a year earlier, according to the central bank's report.

"Banks should pay special attention to the potential risks arising from the continuing increase in defaulted credit card payments when they are promoting the development of credit card business," the report stated.

China saw its credit card business start to take off in recent years as more banks realized it could become a major source of revenue.

As of March, Chinese banks had extended 150 million credit cards, up 42.9 percent year-on-year.

That increased the number of credit cards held by each Chinese consumer to 0.11, compared to an average of 4.39 credit cards held by Americans, central bank statistics showed.

The credit card business remains a side enterprise in the overall business portfolio of Chinese lenders, but it promises huge potential in the future.

Thus, banks lowered issuance requirements and loosened credit checks.

Even students with no fixed incomes were once more readily issued credit cards.

In the wake of the global financial crisis, domestic lenders used the massive credit card defaults in the United States as a cautionary tale and tightened their own requirements for approving credit cards.

"We have already suspended handing out Young cards (a type of credit card for students) since last year, as they are defined as a high-risk group of people with no fixed income," said a staff member at the Beijing credit card center of China Merchants Bank