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Banks hold rates, eye bad debt in credit-card revamp

Published:Sunday | July 18, 2010 | 7:00 AM

Avia Collinder, Business Writer

Seeking to resuscitate sagging earnings from credit products, local banks have sought to jazz up their credit-card offerings in a market that is now flat.

But as the card revamp takes shape as part of a broader credit portfolio revamp, rates are being held fairly high by all the banks, with some institutions even using punitive pricing and other policies to keep the lid on bad credit.

Central bank data as at April 2010 indicate that credit-card receivables - used as proxy for market performance - remained flat, with balances of J$11.8 billion and US$5.1 million, compared to J$11.5 billion and US$5.4 million at April 2009.

The Bank of Nova Scotia (BNS) has implemented a new pricing policy under which rates go higher if cards are misused, while National Commercial Bank (NCB) now automatically suspends accounts which are 15 days past due.

Some banks have pulled old cards, while some have introduced new products in the category, all the time holding interest rates at old levels.

NCB has cancelled its local and international Visa cards, replacing them with the dual-currency NCB Visa classic.

The bank's marketing manager, Kerine Hamilton, said the new card, which was introduced in February, is offered at an effective rate of 4.0833 per cent per month to clients who earn at least a qualifying salary of J$360,000 per year.

The interest rate on US-dollar credit is 18 per cent, and for Jamaican dollar, 39.75 per cent to 49 per cent.

The card was introduced to the market at 39.75 per cent.

At BNS, a new rate policy punishes spenders who do not pay their credit-card bills on time. The new pricing policy permits a variable rate to apply, depending on usage. The qualifying salary ranges from J$45,000 to J$58,000 per month - J$540,000 to J$700,000 per year - depending on a credit score assigned to the customer.

The interest charge on BNS cards ranges from 44.75 per cent to 51.99 per cent for Jamaican dollar-denominated cards, and 18 per cent to 21.99 per cent for US-dollar cards.

Interest rates on cards

At FirstCaribbean International Bank Jamaica, interest rates on cards have remained between 29 per cent and 45 per cent.

"Our interest rates are subject to review from time to time and our intention is to price all our products competitively," said retiring managing director, Clovis Metcalfe.

The issue of bad debt figures prominently in BNS' credit-card policy, although bank officials have declined to disclose information on defaults associated with its credit-card portfolio.

"We have implemented a number of strategies to ensure better compliance while minimising write-offs from our portfolio," Barrington Graham, senior manager of credit cards for BNS, said of its policy.

In November 2009, the banking group's president and chief executive officer, Bruce Bowen, said that while demand for credit remained robust, the bank was approving fewer cards, and had tightened its policy.

As income is reduced, fewer people will qualify for cards, Bowen said then.

This week, Graham said the bank had adopted a new credit policy to ensure that those who are approved for a card are able to manage the credit responsibilities.

"We have adjusted our pricing policy to encourage cardholders to pay on time more consistently, and we have also implemented on-going customer education and advice on how customers can use their cards wisely."

NCB has also implemented measures to prevent out-of-control spending among the holders of its cards.

"To keep customers' accounts active and avoid delinquency, accounts which are 15 days past the due date of their minimum payment ere automatically blocked," Hamilton said.