Credit card spending falls for second consecutive month in September

• Outstanding credit card balance falls by Rs.566mn
• But over 13, 500 new credit cards issued in Sept.

People continue to shun credit card debt for the second month in a row in September although they appear to be signing up for new cards. 

Outstanding credit card balance fell by Rs.566 million in September to Rs.117, 534 million after falling by Rs.76 million in August.  Outstanding credit card balance rose in both June 
and July.  

The Central Bank in August revised down the regulated maximum interest rate on credit cards to 18 percent from 28 percent as interest rates in the broader economy were on the decline.

While the move was expected to woo cardholders into spending, that is yet to take off as many factors are at play. 

The opposite behaviour in credit card spending versus the surge in consumer spending during the same month could be attributed to the higher use of earnings as well as cash balances in savings accounts accumulated during the lockdowns that ended in mid-May. 

Data showed that people and companies had built a massive stockpile of bank deposits to the tune of Rs.350 billion from April through July. 

With the September data, total outstanding credit card balance was down by Rs.3, 955 million from the beginning of the year balance of Rs.121, 489 million. 

The lower credit card spend could also be attributed to the fairly easy bank credit available for consumers and small businesses alike, who could now borrow at rates as low as 7-9 percent. 

However, the people signed up for 13, 514 new cards in September, taking the total number of active credit cards up to 1,884,341 by the end of September.

While there were some signs of rising credit card delinquencies since March, the situation remains manageable and doesn’t appear to pose a significant threat to the financial system.