Data from Bank Negara Malaysia (BNM) has shown an increase in outstanding balances of credit cards for the third consecutive month, now up to RM35.89 billion in July 2022. It is the highest amount recorded since February 2020, when the balance stood at RM38.05 billion.

According to BNM, this increase signifies a surge in credit card usage among Malaysians as they return to pre-pandemic lifestyles, as well as a willingness to spend more. It could also be due to the higher prices of products as inflation hits.

Meanwhile, the credit limit offered by credit cards also broke a new record of RM154.34 billion in July, following its steady rise over the past year. BNM said that this parallels the increase in the number of credit cards that are in circulation (including supplementary cards), which rose from 9.57 million cards in September 2021 to 9.92 million in July 2022. This is as it inches closer to the 10.1 million total recorded in March 2020.

BNM explained that the number of cards in circulation has likely risen because banks are now issuing more cards, especially with more people gradually getting back into employment. To note, Malaysia’s unemployment rate has steadily declined, from 3.9% in April and May, to 3.8% in June, and to 3.7% in July.

Despite there being more cards in circulation, however, BNM said that the utilisation of credit lines provided by the cards are not high. Data indicated that the amount has remained below the pre-pandemic level of 24% for more than two years since the start of Covid-19, and the recent increase in credit card usage between May to July did not affect the figure significantly.

Meanwhile, senior economist at UOB Global Economics and Markets Research, Julia Goh said that the increase in credit card use could have been encouraged by various other factors aside from inflation. These include improving labour market conditions and higher salaries – which, of course, improved accessibility to credit.

“Coupled with [the economy] reopening, higher mobility and the release of pent-up demand [have led to an increase in] private consumption and credit card usage. There are also more interest-free instalment plans and financing options available that have spurred credit demand,” said Goh, although she also highlighted the risk of excessive debt accumulation among consumers. This is especially true for cardholders who are less financially literate, have poor financial management, or have unstable incomes – therefore making them more vulnerable to bankruptcy.

That said, Goh also reassured that the percentage of credit card debt to total household loans is currently still quite low at 2.5%, and that credit card delinquency rate is relatively low as well. This is based on BNM’s data, which showed that the overdue amount for credit cards – with outstanding balance of less than three months and three to six months – has only slightly increased since April 2022.

Specifically, the overdue amount of less than three months has gone up from RM987.88 in April to RM1.17 billion in July, while overdue of three to six months increased from RM186.34 million to RM202.33 million during the same period. Credit card overdue balances that are more than six months, too, has increased since April, with a jump in July to RM18.04 million.

“Nevertheless, debt-driven growth is considered unsustainable in the medium term. Sustainable consumption trends must be supported by higher incomes, lower unemployment, and increased productivity,” Goh reminded.

(Source: The Edge Markets)

• TAGS:
• Bank Negara Malaysia
• BNM
• Credit Card Payment
• Credit Card Statistics
• Credit Cards
• Julia Goh
• UOB