Uncertainty may curb rising card spending

Spending through credit cards maintained an upward trend in Bangladesh in January, but bankers say the rising coronavirus infections and deepening uncertainty may discourage credit-based purchases.

Total card loans stood at Tk 1,579 crore in January, the highest on record in a single month.

The figure is up 1.19 per cent from a month earlier and 16.38 per cent year-on-year, according to the latest Bangladesh Bank data.

The upward trend may hit a high though because of the rising number of coronavirus infections.

Banks have taken initiatives to encourage people to spend more online on the occasion of the two biggest shopping seasons: Pahela Baishakh, the first day of the Bengali calendar, and the Eid-ul-Fitr, the biggest spending season in Bangladesh.

During the fasting month and Eid festivals, clients usually use credit cards two to three times higher than in other months.

The transaction may face a blow this time as witnessed during the same period last year as spending fell owing to uncertainty at the height of the pandemic in the country.

Bankers overseeing cards say if coronavirus infections continue to rise in the days ahead at the current alarming rate, people may rein in their expenses.

Bangladesh recorded the highest number of deaths from Covid-19 in a single day since December 15 in the 24 hours to 8:00am yesterday. Thirty-nine people died during the period, according to the Directorate General of Health Services.

At least 3,674 new cases were recorded. The number of caseloads remained more than 3,500 for the fifth consecutive yesterday because of people's reluctance to maintain health protocols amid lax legal enforcement.

Just after the government enforced a nationwide lockdown and general holiday by the end of March last year, the use of credit cards drastically went down amid uncertainty and massive income and job losses.

It rebounded in October as the economy began to recover from the fallouts of the pandemic-induced lockdown. A record Tk 1,561 crore was spent through credit cards in December.

The central bank is yet to prepare the credit card lending statement for February, but spending also went up in February, bankers said.

The increased use of credit cards has created hope among card-issuing banks and non-bank financial institutions that the upcoming festivals will bolster digital transactions.

"If the latest spike of the cases continues, the card issuers will face woes," said Ahsan Ullah Chowdhury, head of card and digital banking at Eastern Bank Ltd (EBL).

EBL has so far issued nearly 1.70 lakh credit cards.

"People usually buy a huge number of groceries during Ramadan. Such a trend will take a hit if the deadly flu spreads more," Chowdhury said.

Mahiul Islam, head of retail banking at Brac Bank, said the lenders were still feeling comfort thanks to a hefty return from the card businesses in recent months.

Transactions through credit cards during Ramadan rises nearly three times compared to the average month, he said.

"But this will not be possible if infections spread further. We are working on the upcoming festivals to boost transactions."

Brac Bank now issues 6,000 to 7,000 credit cards per month, which is higher than before.

Banks usually offer discounts to clients if they purchase selected goods and services by using credit cards during festivals.

The number of digital transactions has been growing steadily since 2010, driven by the increasing popularity of mobile financial services (MFS).

Yet, digital transactions, including those routed through MFS operators, are less than 5 per cent of all retail transactions in Bangladesh.

Syed Mohammad Kamal, country manager of MasterCard Bangladesh, said that card transactions would face trouble in case of a rise in infections.

But the gravity of the impact might not be dreadful compared to what the country had gone through during the lockdown from the last week of March to May last year.

A good number of people have become habituated with using credit cards to protect themselves from the virus.

"So, e-commerce will be on the rise in the days to come," he said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the numbers of transactions would go up if infections pick up as people would prefer cashless settlement to avoid dirty notes and going outside of their homes.

But the volume of transactions may dip as cardholders could spend less amid all the uncertainty.

"The income level of people has already gone down due to the pandemic and will decline further if the rogue virus spreads further," Rahman said.

The issuance of credit cards rose in January, when the number of cards stood at 16.93 lakh, up from 16.76 lakh a month ago.