The number of credit cards’ base and its utility witnessed a decreasing trend among customers despite the reduction in mark-up rates.
According to the State Bank of Pakistan (SBP), the number of credit cards declined to 1.63 million in the first quarter of the financial year 2020-21 (July to September) against the previous quarters in which the base stood at 1.65 million and 1.66 million.
The utility of credit cards has also decreased in the country from July to September. One of the reasons is the economic and income instability among the middle-class customers due to the loss of income sources and the inability to repay the credit, along with high-interest rates.
Moreover, a section of customers opted to stop the facility, whereas multiple cardholders of the credit cards preferred to use a limited number of card(s) from various banks.
According to SBP, the credit value withdrawal against credit cards stood at Rs. 59.6 billion during the first quarter of FY19 has reduced to Rs. 58 billion during the corresponding period of this year.
In the second quarter of last financial year, October to December, the utility of the credit against the cards surged to Rs.70.9 billion as per the SBP’s data. In the third quarter (Jan to Mar) the value fell to Rs. 65.3 billion, and in the fourth quarter (April-June), the value further reduced to Rs. 41.9 billion.
The consumption pattern showed a gradual decline, mainly during the period of the first wave of the COVID-19 outbreak, which resulted in lockdowns and a slowdown in economic activities.
SBP introduced a deferred loan payment scheme for the customers of credit cards to provide them relief during a challenging time. The mark-up rates on the credit cards also reduced in tandem with the policy rate by 6.25 percent, but it failed to retain the consumption of the credit service of the banks.
As a result of the drop in the use of credit cards, the earning of the commercial banks driven through this segment got affected. However, a few banks carried out discount campaigns on foods and clothing brands to attract their inactive customers.
In the first quarter of FY21, the credit value against the cards slightly improved among the customers due to the reopening of the business and recovery of the economic activities, which may continue to improve its situation in the subsequent quarters of the current financial year depending on the economic situation.
According to an estimate, banks in Pakistan charge high-interest rates in case of non-payment of credit value on time, which vary from 20 percent and above, depending on the period of repayment and loan values. Markup charges on credit cards are considered higher in Pakistan, which is evident from the limited base of active users of this product in the country.