It has been more than a decade that
financial institutions (FI) and banks in Bangladesh are selling credit cards in
mass level. For an emerging economy like ours, credit cards play a vital role
for changing lives of commoners. Being a vanilla product in banking term,
credit card is easy to get, collateral free with an interest rate higher than
regular consumer lending rates; in some cases almost double. A family can
fulfill their dream of buying household goods and pay back in their convenient
installment amount and tenor. However, since all banks and FIs are in
aggressive lending for credit cards due to high profit margin, it is easier for
a person to get credit cards from more than one bank, in some cases 4-5 banks.
This extra credit facilities sometimes lures customers to spend more than his
affordability. During this time when our economy is struggling for maintaining
a consistent GDP, such spending by mass people may pose a threat to banking
sector. Customers with such spending nature tend to take more loans to set off
their previous loans and at one point they default. Customers use their credit
cards for their day to day activity and when they fail to repay, banks try to
offset this loss by interest rates hike, imposing other fees and penalties. Such
method to recover loss may not work all the time and banks’ profitability will
be at risk always. For a country like ours, any hit in banking sector will have
impact on economy. And for this, it is high time for quality credit lending.
Banks should ensure that their customers are not overburdened and over
exposed. Bangladesh Bank can play a major role by introducing reporting
of credit cards in Credit Information Bureau (CIB) reports and instructing all
banks to download CIB report before any credit card lending. Introduction of
existing credit card reporting is not that easy since it is a time consuming
process and involves rearranging bank's database and in many cases banks may
not have all the information required for reporting. But it needs to be started
so that before making a credit decision banks/FIs can get to know customers’
existing credit exposure. It is not necessary that a good borrower with good
credit history or a customer with good socio-economic background will repay
credit card dues regularly. All we need is to ensure quality while lending such
collateral free products and to monitor continuously after that. We cannot let
our economy to fall into credit card debt crisis just for our faulty business
decisions.
