As we spend more, the credit card sector thrives

Rising consumer credit in China has increased the number of credit cards in circulation and also nudged up the bad-loan ratio in the sector.

Nationwide, China had an aggregate 686 million cards in use, including credit cards and debit cards. That figure rose nearly 17 percent last year, according to the People’s Bank of China, the nation’s central bank.

Statistically, there was one bank card for every two people in China.

The Agricultural Bank of China topped the list of newly issued credit cards, with 18 million last year. That ranked it first among the nation’s 13 listed major banks that have so far published their annual reports, said the MaDai Institute, a Shanghai-based wealth management research body.

The report covered China’s top six state-owned lenders and seven joint-stock commercial banks.

China CITIC Bank, Shanghai Pudong Development Bank and several other institutions reported credit card issuance exceeding 1 million in 2018, the report said.

In terms of cumulative numbers, the Big Four lenders dominated the market. Industrial and Commercial Bank of China had 151 million cards issued at the end of 2018, followed by China Construction Bank with 121 million. Bank of China had 110 million cards, and Agricultural Bank, 103 million.

China Merchants Bank, a pioneer in the credit card business and Ping An Bank, which is betting big on the lucrative segment, said their credit cards in circulation stood at a 84.3 million and 51.5 million, respectively.

The research firm noted that smaller competitors, such as Shanghai Pudong Development Bank, China Everbright Bank and China CITIC Bank, are catching up fast, with their businesses growing at over 30 percent year-on-year.

In terms of credit-card transactions, Shenzhen-based China Merchants Bank, which specializes in retail banking, came in first, with its credit-card holders charging 379 million yuan (US$56.4 million), followed by Bank of Communications at 307 million yuan.

Booming with risks 

Meanwhile, the overdraft balance of credit cards of both the Industrial and Commercial Bank of China and China Construction Bank exceeded 600 billion yuan. China Merchants Bank and Bank of Communications both exceeded 500 billion yuan, according to the MaDai Institute’s study.

For many of the banks, the overdraft balance accounted for more than 30 percent of loans extended to individuals. At two Beijing-based joint-stock banks, China Everbright Bank’s balance accounted for 38 percent of loans, while China Minsheng Bank came in at 32 percent.

China Zheshang Bank, which ranked last in terms of card issuance and overdraft balance, recorded a much faster expansion rate than the other banks. The Hangzhou-based lender’s credit-card usage jumped 176 percent last year, while its overdraft balance rose 165 percent.

 A central bank report said the overall credit extended through bank cards jumped by nearly a quarter last year to 15.4 trillion yuan.

However, the booming credit card sector is not without risks.

Excessive credit limits and consumers borrowing from multiple sources helped contribute to a soaring non-performing loan rate.

China Minsheng Bank’s credit card bad loan ratio rose to 2.15 percent in 2018, while CITIC Bank’s rose to 1.85 and Pudong Bank’s increased to 1.81 percent.

The MaDai Institute said the rising bad loan ratio didn’t just happen overnight.

Some joint-stock banks, it noted, have adopted aggressive development strategies in the past two years in an effort to grab a larger share of the market.

As risk control policies loosened, customers with poorer credit records gained access to credit cards. To address the problem, some banks have pared back lines of credit and tightened limits on riskier cardholders.

Several established players have slowed their rate of expansion. One of them, Industrial and Commercial Bank, added only 8 million new credit cards in 2018.

The MaDai Institute predicts that China’s credit card market will continue to expand this year, but at a slower pace.

To keep credit-card business sustainable, the report advises banks to strengthen use of financial technologies and improve operational efficiency.