Credit card spend weakens further in May as rates go into restrictive territory
„Banks have issued only 2,698 new cards in May, slumping to the lowest on record
People appeared to have cut back on their credit card spending and instead settled their balances after banks raised their rates to 30 percent effective from May as both banks and card users digested the reality of the rising rates in the economy.
According to the card spend data for May, the total outstanding balance of credit cards fell by Rs.2,170 million to Rs.136.0 billion signalling that people are becoming more cautious of what they buy and the type of credit they must carry when their household balance sheets get more tightened after hyperinflation bit into their real incomes.
Putting a further damper on the card use, banks are again raising their rates on cards as one bank has already raised its interest rates on the outstanding card balance to 36 percent while the others are expected to follow suit, as banks are seeing their non-performing loans rising at a rapid pace in response to the total collapse of the economy.
There were also reports that cheque returns had risen to recent highs while a wave of defaults from all sizes of borrowers have begun with the worst to be seen from next month onwards.
When policy rates were raised by a bumper 700 basis points in April to contain the demand-driven inflation, a section of economists forwarded against its consequences of corporate bankruptcies and large volumes of defaults.
Last week Mirror Business showed that corporate deleveraging exercises had come to a halt as a result of the soaring rates and the soured economic conditions which made asset disposals virtually impossible.
Unless quick redress is provided, it is hard to rule out a complete meltdown in the banking and financial services sectors due to self-imposed defaults of loans and leases as borrowers are struggling to make their ends meet, let alone paying their loans.
Meanwhile, in evidence of tighter credit conditions, the new card issuances which fell by a half between March and April slowed further in May.
Banks have issued only 2,698 new cards in May, slumping to the lowest on record.