Lax Credit Card Issuance Draws Regulator's Attention
Liao Shumin
DATE:  Nov 21 2017
/ SOURCE:  Yicai
Lax Credit Card Issuance Draws Regulator's Attention Lax Credit Card Issuance Draws Regulator's Attention

(Yicai Global) Nov. 21 -- The banking regulatory bureau in Chongqing municipality in southwest China has tightened regulation on credit card business of financial institutions. The regulator has issued a circular on further strengthening prevention and control of credit card risks, noting that efforts should be made to further regulate credit card business and calling for further strengthening the management of credit card business, the Securities Daily reported.

Credit card business has been growing rapidly in China in recent years and has become a major source of income for leading financial institutions. As banks vigorously develop their credit card business, the relevant risks have also increased.

As of the end of the second quarter of this year, a total of 520 million credit cards and debit-credit cards were issued nationwide, up 9.82 percent year-on-year, with each Chinese person holding 0.34 card on average, indicates the 'Overall Operation of the Payment System' published by the People's Bank of China (PBOC). With banks vigorously developing their credit card business, lax card issuance is mainly caused by overemphasis on the number of cards issued when gauging bank employees' performance, insiders said.

"In recent years, with the rapid development of banks' credit card business, default rates have kept rising and bad debts associated with credit cards remain high, pointing to big risks. Complaints and disputes have increased significantly, and collection of bad debts is inefficient. According to judiciary departments, the number of credit card cases grew several times every year between 2014 and 2016," the local regulator said. "However, few criminal cases were cracked, and it was difficult to investigate such cases and impose accountability. The longer credit card bad debts are overdue, the lower the rate of successfully recovering such debts. The quota of write-off of bad debts was limited, making it difficult to disposal of bad debts."

However, many credit card customers apply for a credit card just to help their friends. "I have a total of five credit cards, including three issued by the same bank. I apply for these credit cards just to do my friends a favor. I have several friends working at banks. They told me they are tasked with getting customers apply for credit cards. If they fail to complete their tasks, they will have to take a salary cut," said Li, who works in Beijing.

Besides marketing via friends, many credit card salespersons market credit cards through WeChat's 'people nearby' function, making people feel annoyed, some netizens said. A credit card salesperson in a bustling district in Beijing told the Securities Daily that customers can apply for credit cards as long as they provide a copy of their identification cards and they can get gifts.

Lower application requirements have led to fraud risks. Banks' card issuance drive has also led to a growing number of 'zombie cards.' Per the 'Blue Book on the Development of China's Bankcard Industry (2017)' issued two months ago, 71.4 percent of credit cards were active as of the end of last year, meaning nearly one-third of credit cards issued were inactive.

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Keywords:   Credit Card,Bank,REGULATION,Financial Risk