Banks combating rising credit card defaults

Sri Lankan banks, to combat credit card defaults, have resorted to converting credit card balances into loans designed for extended tenor, lower interest rates, and better settlements.

Banks had witnessed an increase in credit card deals during certain financial quarters last year. “For example, during quarter two and quarter three, we did see an increase in non-settlements. During the past quarter it became much better,” a senior official of the card centre of a large bank told the Business Times.

Banks have also resorted to converting credit card balances into loans. This has provided the customers with better interest rates and a structured payment plan. “This way the payments are more recoverable. Also, the customers get more time and a better plan,” a second banker said.

Certain banks have already taken measures to reduce the non-repayments. For instance, now only those earning Rs. 100,000 and above as a salary can apply for a credit card. “We did this primarily to stop the defaults. As it is, people are finding it difficult to pay on time. The new applicants will be screened better and will have the minimal salary scale criteria, and we're hoping it will work better in terms of repayments,” a senior banker said.

While some foreign banks have not been impacted as much as their local counterparts in terms of nonsettlements, some bankers said that the delinquencies in those banks are also on the higher side.

Banks are also facing some housekeeping issues.

Some customers complained that they have not received credit card statements at all, to which many bankers said that the banks are pushing for Electronic statements or E-statements now as the snail mail is mostly delayed. “So many customers are not updating their e-mail addresses or the emails that we sent go to their spam. This delays their payments,” the first banker said.