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Thursday 11 December 2008
HSBC raises interest rate on credit cards to 31.86pc
Despite government measures to boost lending to help the economy and a drop in bank funding costs, HSBC Holdings, the city’s largest issuer of credit cards, is raising interest rates on all its local personal credit cards to 31.86 per cent.
HSBC raises interest rate on credit cards to 31.86pc
Neil Gough and Natalie Chiu 11 December 2008
Despite government measures to boost lending to help the economy and a drop in bank funding costs, HSBC Holdings, the city’s largest issuer of credit cards, is raising interest rates on all its local personal credit cards to 31.86 per cent.
The move, which follows those by other banks, will raise the base annualised percentage rate that HSBC charges its more than 3.6 million local cardholders from February 1 next year. The rate now is 26.81 per cent.
It is the latest sign that credit is evaporating across an increasingly broad swathe of the economy, and growth prospects are expected to dim further in response.
“Banks are raising credit hurdles and interest rates across the board,” said Credit Suisse chief regional economist Dong Tao. “That hurts private consumption and hurts the economy.
“The centre of the financial tsunami is shifting from Wall Street to Main Street.”
A HSBC spokesman said rates were lifted to align monthly finance charges with those of other banks.
Credit cards issued by Standard Chartered charge a base annualised percentage rate of 28.4 per cent, while Bank of China’s rate is 26.46 per cent.
Analysts said banks were seeking to make up for declining fee income from other products and services.
The deteriorating economy and weak demand for investment products have prompted banks to increase lending rates in recent weeks, including mortgage rates for homebuyers - despite government measures to stimulate lending and guarantee loans - even as banks’ own costs of funding have been falling.
The benchmark three-month Hong Kong interbank offered rate stood at 1.75 per cent yesterday, near four-year lows and down from its peak of 4.44 per cent on October 13.
“[Credit cards are] a good source of income for banks to earn more interest and fee income, and more banks are expected to follow suit,” said Kim Eng Securities analyst Ivan Li Sing-yeung.
By increasing the cost of consumer credit, the credit card rate increases are likely to further depress already weakened private consumption expenditure, which accounts for about 60 per cent of Hong Kong’s gross domestic product.
With a population of 6.98 million and 11.95 million cards in circulation in September, Hong Kong has one of the highest credit card penetration rates in the world.
But only 32.4 per cent of outstanding receivables in the third quarter had been rolled over from previous billing statements, meaning the majority of cardholders did not carry a balance and thus paid no interest.
At the same time, the ratio of delinquent card accounts to total receivables fell to a record low of 0.31 per cent in the third quarter, according to data from the Hong Kong Monetary Authority.
Still, analysts read the latest rate rises as a sign that increasing defaults are probably in the pipeline.
“Delinquency trends usually lag behind the changing economic environment, and rising bad debts will likely appear at the end of the fourth quarter or next year,” CLSA analyst Kevin Chan said.
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HSBC raises interest rate on credit cards to 31.86pc
Neil Gough and Natalie Chiu
11 December 2008
Despite government measures to boost lending to help the economy and a drop in bank funding costs, HSBC Holdings, the city’s largest issuer of credit cards, is raising interest rates on all its local personal credit cards to 31.86 per cent.
The move, which follows those by other banks, will raise the base annualised percentage rate that HSBC charges its more than 3.6 million local cardholders from February 1 next year. The rate now is 26.81 per cent.
It is the latest sign that credit is evaporating across an increasingly broad swathe of the economy, and growth prospects are expected to dim further in response.
“Banks are raising credit hurdles and interest rates across the board,” said Credit Suisse chief regional economist Dong Tao. “That hurts private consumption and hurts the economy.
“The centre of the financial tsunami is shifting from Wall Street to Main Street.”
A HSBC spokesman said rates were lifted to align monthly finance charges with those of other banks.
Credit cards issued by Standard Chartered charge a base annualised percentage rate of 28.4 per cent, while Bank of China’s rate is 26.46 per cent.
Analysts said banks were seeking to make up for declining fee income from other products and services.
The deteriorating economy and weak demand for investment products have prompted banks to increase lending rates in recent weeks, including mortgage rates for homebuyers - despite government measures to stimulate lending and guarantee loans - even as banks’ own costs of funding have been falling.
The benchmark three-month Hong Kong interbank offered rate stood at 1.75 per cent yesterday, near four-year lows and down from its peak of 4.44 per cent on October 13.
“[Credit cards are] a good source of income for banks to earn more interest and fee income, and more banks are expected to follow suit,” said Kim Eng Securities analyst Ivan Li Sing-yeung.
By increasing the cost of consumer credit, the credit card rate increases are likely to further depress already weakened private consumption expenditure, which accounts for about 60 per cent of Hong Kong’s gross domestic product.
With a population of 6.98 million and 11.95 million cards in circulation in September, Hong Kong has one of the highest credit card penetration rates in the world.
But only 32.4 per cent of outstanding receivables in the third quarter had been rolled over from previous billing statements, meaning the majority of cardholders did not carry a balance and thus paid no interest.
At the same time, the ratio of delinquent card accounts to total receivables fell to a record low of 0.31 per cent in the third quarter, according to data from the Hong Kong Monetary Authority.
Still, analysts read the latest rate rises as a sign that increasing defaults are probably in the pipeline.
“Delinquency trends usually lag behind the changing economic environment, and rising bad debts will likely appear at the end of the fourth quarter or next year,” CLSA analyst Kevin Chan said.
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