Credit card spending heading down in 2020

Aeon Thana Sinsap Thailand expects credit card spending to decline by 10-15% this year. (Photo by Varuth Hirunyatheb)

Annual spending on credit cards is expected to contract this year due to the coronavirus crisis, especially spending abroad, due to the government’s ban on cross-border travel.

Credit card spending in the financial sector contracted 14.2% year-on-year in the first five months of this year.

The contraction gradually improved from 40.1% in April to 27.6% in May and 4.5% in June.

Aeon Thana Sinsap Thailand, a Japan-based non-bank company, expects credit card spending to decline 10-15% throughout this year after experiencing a contraction of nearly 10% since the start of the year.

The company expects its credit card business to have suffered the most impact and hit a low in its first quarter, covering March through May, based on Japanese accounting practices, the company said. director Nuntawat Chotvijit.

For the first quarter, Aeon reported revenue from its credit card business of 1.73 billion baht, down 7% year-over-year.

The decline in credit card revenues has been attributed to a drop in credit card spending, mostly caused by the pandemic.

Nuntawat forecasts a marginal rebound in credit card spending in the second half of the year amid an economic slowdown.

Credit card spending for tourism-related categories, particularly outbound tourism, will contract in light of the government’s ban on cross-border travel to contain the outbreak.

Other types of spending for tourism-related categories, including hotels, airlines and restaurants, will be slow, Nuntawat said.

For the second half of the year, the company will focus on civil servants, who have faced a reduced impact of the pandemic, while focusing on the higher business potential of medical staff.

The company will pay more attention to online shopping and food delivery for higher card spending.

Lower interest rates for credit cards and personal loans, in line with Bank of Thailand guidelines for debt relief measures, also affected the company’s interest income, said Mr. Nuntawat.

The measure will, however, help contain a rise in non-performing loans (NPLs), he said. Customers requesting a suspension of principal and interest payments represent approximately 5% of total customers.

Despite the outlook for increased NPLs, the company plans to manage bad debts to a controllable level by the end of the year. The ratio of outstanding loans to total loans stood at 3.7% in May.

“We do not intend to adjust the loan approval criteria,” Nuntawat said. “But the accessibility of title loans for borrowers will decrease because of their lower debt service capacity.”

Despite a better outlook for credit card spending in the second half of the year, annual credit card spending is expected to fall 10% year-over-year, said Nayanee Peaugkham, managing director of Ayudhya Capital Services.

The crisis saw the company’s contract spending on credit cards by 13% year-on-year in the first half of the year, Ms. Nayanee said.

Chutidej Chayuti, chief financial officer of Krungthai Card, said the company is revising its business target for the year, as credit card spending has been dampened by the pandemic and sluggish economic conditions.

Despite maintaining the current growth rate of credit card spending at 10% this year, KTC believes it will be difficult to maintain positive growth momentum amid downside risks.

KTC booked credit card spending worth 90.6 billion baht for the first six months of the year, down 9.6% year-over-year.

The contraction rate improved from a 10.7% year-over-year decline in the first five months, due to the government’s forbearance program and consumers resuming spending normal cards.

The company estimates that the NPL ratio already peaked at 6.6% in June.

In the second half of the year, the company’s business operations will face downside risks related to the slowdown and uncertainty surrounding the pandemic.

The central bank’s forbearance measures in the second phase, lowering the credit card ceiling rate from 18% to 16% and the personal loan rate from 28% to 25%, will also reduce the company’s profitability, Mr Chutidej said.

KTC plans to focus on a new loan product, called KTC P Berm, comprising property loans for automobiles and motorcycles, picofinance and nanofinance.

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About Jennifer Amaro

Jennifer Amaro

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