'Fast-growing Asians fall into credit card trap'
The use of credit cards in many Asian markets increases three to six-fold between 1998 and 2005, says a report.business Updated: Jun 11, 2007 09:56 IST
Consumer credit card lending in fast-growing Asian economies in recent years has been marked by sharp boom and bust cycles that can jeopardise financial stability, a report by the Bank for International Settlements said on Monday.
The use of credit cards in many Asian markets increased three to six-fold between 1998 and 2005, while the average credit card balance per head grew by about the same amount, a study in the June 2007 BIS's quarterly review said.
Banks took advantage of the growth in consumer markets to compete for high yield but riskier business among less wealthy cardholders, by reducing lending standards and making consumer credit more easily available, it added.
That helped fuel consumer spending but also produced a rapid build-up in household debt, with a "disproportionate concentration of debt burdens among riskier card holders," the report found.
Cardholders later started to default on repayments as their debt accummulated and they became overstretched, prompting the introduction of tighter lending standards that suddenly stifled the private credit market and affected the economy.
"The bottom line is that, as consumer finance becomes an important part of Asia's financial system, policymakers need to better understand the associated risk and be prepared to respond," the BIS report said.
"Credit card lending represents new opportunities but increases risks to the financial system," it added.