Sri Lankans are swiping credit cards more as the going gets tough – Reuters

  • The outstanding balance increased by 3.9 billion rupees at the end of March 2022
  • Going forward, a sharp rise in credit card interest rates could make cardholders think twice before swiping
  • March sees a significant increase in new cards

Sri Lankans, whose real incomes are being slashed daily by soaring inflation, have turned to their credit cards as there was a significant rise in outstanding credit card balances in March compared to last a month ago, when the financial and economic misery became more pronounced.

According to card data, the outstanding balance of credit cards increased by 3.9 billion rupees to reach 138.8 billion rupees at the end of March, bringing the increase of the first three months to 5.5 billion rupees. .

This was reflected in the banks’ interim results for the March quarter, as they saw an increase in their card portfolios, which in turn helped them increase their fee income. Although there has been a sudden increase in card balances, the sharp rise in credit card interest rates could make conditions worse for cardholders, making them think twice before swiping their cards. .

After the Central Bank eliminated maximum interest rate caps on credit cards in the third week of April to reflect rapidly rising interest rates in the economy, banks quickly raised their interest rates of up to 30% on the outstanding balance of the cards, which came into effect from their next credit cycle.

Meanwhile, banks are also tightening their credit standards and refusing requests for balance enhancements and applications for new cards, regardless of the creditworthiness of applicants. Some banks do not even give the reasons for the rejection of the request, a very bad practice on their part.

However, banks also face increased credit risks from their card customers, as they face deliberate defaulters after using the entire card balance. The credit card is a clean facility branded by a bank to its customers and there is usually no security involved.

In an economic downturn like the one Sri Lanka is facing today, credit cards are the last to be settled after all other loans by borrowers. Therefore, banks face a higher risk of non-performing credit card loans.

Meanwhile, there was also a significant increase in the number of new cards approved in March. Licensed commercial banks issued 18,716 new cards in March alone, out of 38,201 cards issued in the first three months.