Curbs on credit card issuance

(ET FILE)   

 
  

The Central Bank of Kuwait’s (CBK) new modifications to regulations for consumer loans, setting the maximum percentage of total monthly installments at 40 per cent of the salary, will come into effect today, drawing a number of question marks on the future of credit cards, considered a form of loan, Kuwait news agency Kuna reported on Saturday.

 

In anticipation of this CBK amendment to regulations, banks had begun last year to lower credit card limits for many of their clients, while some cards were cancelled altogether. According to recent CBK figures, there were 549,600 issued credit cards up to the end of 2007, with payments made using them exceeding KD 156 million ($580 million).

 

Over the past two years, the number of issued credit cards had been on the rise due to offers made by local banks, and this was further encouraged by the ability to withdraw cash using these cards from any ATM, provided they were within the limit.

 

In 2006 and 2007, local banks issued some 85,000 credit cards at an annual growth of 10 per cent, bringing spending up from KD 118 million to KD 156 million, an increase of 32.2 per cent. Spending includes the use of credit cards to withdraw cash or pay at points of sale, both in the country and abroad.

 

Looking at the KD 156 million spent on credit, it comes down to two categories: KD 107 million spent inside the country, and KD 49 million spent abroad. Of this total, KD 52.3 million was withdrawn as cash, counter to the purpose of the credit cards, which is primarily to pay in a safe and traceable method at points of sale. Banks have tried to cut down on cash withdrawals by placing a four per cent interest on amounts withdrawn.


CBK’s new regulations stipulate that total loan installments should not exceed 40 per cent of an employee’s salary, and 30 per cent of the salary of a retiree.

 

CBK Governor Sheikh Salem Abdulaziz Al-Sabah had said, in remarks to Kuna at the time the modifications were announced, that this was in the interest of the society and its members. It will protect banking authorities and curb the growth in volume of loans, he explained.

 

It is expected the new amendments will help cut down on needless use of credit cards, which in turn will reflect on the rate of spending.

 
 
 
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