International Law

Credit Card Defaults on the Rise in China

By Stan

Credit cards are still relatively new here (debit cards have been around much longer), but their circulation is increasing. No surprise, therefore, that default rates have risen, particularly during this recession.

Credit card default in China more than doubled year on year in the second quarter, but analysts said the risk is still within control.

The value of outstanding defaults of more than six months surged 131.3 percent from a year ago to 5.77 billion yuan (US$845 million) at the end of June, the People’s Bank of China said.

On a quarterly basis, the defaults grew 16.2 percent.

“Credit card defaults grew rapidly alongside with increasing card circulation in China,” said She Minhua, a Haitong Securities Co analyst. “However, the default rate in China is still low when compared with western markets.”

In China, defaults accounted for 3.1 percent of total outstanding lending on credit cards, up 0.7 percentage points from a year ago.

The default rate in the United States is around 7.5 percent. (Shanghai Daily)

Seems like the default rate is still quite low. It will be interesting to see what will happen to that number as more and more cards are issued and, at the same time, credit card use becomes more common.

One could argue that the banks have thus far cherry picked cardholders, approving folks with comparatively better credit. I don’t know whether this is true, but it certainly makes sense.

If it is true, and the banks continue the expansion of card issuance, then eventually they will start giving cards to people with sketchier credit.

Will default rates therefore ultimately go up?

© Stan for China Hearsay, 2009. | Permalink | No comment | Add to del.icio.us
Post tags:

Full post as published by China Hearsay on September 18, 2009 (boomark / email).