Credit Card Receivables Survey Results For December 2001

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the results of its survey on credit card receivables as at end-December 2001.

The main feature of the latest quarter's figures is the rise in the (annualised) charge-off ratio to 8.27% and in the delinquency ratio to 1.28%. The respective figures for the September 2001 quarter were 5.33% (N.B. revised up from 4.75% following amendments by a reporting institution) and 1.13%.

The worsening of these figures reflects a deterioration in the quality of credit card portfolios, relating in particular to the sharp rise in personal bankruptcies. However, the figures have also been affected significantly by changes in the charge-off policy of a number of institutions which are now charging off bad debts earlier than before (in particular when a bankruptcy petition is presented rather than when a bankruptcy order is made). The effect of this change is to increase the charge-off ratio and reduce the delinquency ratio. Without the change, the charge-off ratio would have been slightly under 7% for the December quarter, while the delinquency ratio would have been around 1.6%.

The figures for the December quarter are also affected by an increase in the number of institutions in the survey population, from 23 to 27. This includes some subsidiaries of authorized institutions. The main impact of this is on the growth in the number of accounts and in the value of total receivables. Without the change, the number of accounts would have fallen by 0.8% (instead of increasing by 9.7% with the enlarged population) while the value of receivables would have risen by 3.8% (instead of 9.8%).

The rollover ratio declined to 53.2% at end-December 2001.

"The interpretation of the numbers is complicated by a number of factors," said Mr David Carse, Deputy Chief Executive of the HKMA. "What is clear is that there has been an accelerating deterioration in the quality of credit card portfolios. This calls for action on a number of fronts, including review by institutions of their credit card policies and procedures as well as consideration of whether the scope for sharing of credit information should be extended. We are issuing today further guidance to authorized institutions on measures to help control potential abuses of the bankruptcy provisions and on recommended best practices in respect of the management of credit card operations."

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
22 February 2002

Annex

Survey on Credit Card Receivables

'r' denotes figure revised

Survey on the Banking Sector's Credit Card Receivables

Notes on the Press Release

1. This survey covers authorized institutions (AIs) and some subsidiaries of AIs that are engaged in credit card business. It does not cover card issuers that are not AI-related.
2. Credit card receivables in the survey refer to credit card receivables from individual credit cardholders.
3. Credit card receivables are classified as overdue when a payment is past due at the last day of the reporting month (see also Note 7 below). The delinquency ratio is measured by the total amount of credit card receivables overdue for more than 90 days and remaining unpaid at the last day of the reporting month as a percentage of total credit card receivables.
4. Charge-off ratio refers to the total amount of credit card receivables written off during a period as a percentage of the total credit card receivables at the end of that period. The charge-off policy may vary among authorized institutions. Normally, an account will be written off when the receivable has been overdue for more than 180 days or when the ultimate repayment of the receivable is unlikely (e.g. the cardholder is bankrupt or cannot be located). To facilitate comparison among AIs (especially for those which may provide charge-offs at different intervals during the year), the charge-off ratio is annualised.
5. The delinquency ratio provides an early indication of the quality of the credit card portfolio while the charge-off ratio measures the gross credit loss of that portfolio to an authorized institution over a specified period of time. The two ratios are complementary to each other in that the delinquency ratio takes into account those credit card receivables overdue for more than 90 days and not yet written off, whereas the charge-off ratio relates mainly to seriously overdue receivables (e.g. overdue for more than 180 days) that were written off during the specified period. Since the charge-off ratio is annualised but the delinquency ratio is measured based on the month-end position, the former is usually greater than the latter.
6. Rollover amount of a credit card account is the amount outstanding at the previous statement date less any amount paid between the previous statement date and the current statement date.
7. Accounts with rollover amount are those accounts in respect of which the cardholder has repaid at least the minimum amount of payment required by the authorized institution but has not fully repaid the statement balance. Such accounts are not regarded as overdue. An account is overdue when the minimum payment is not made upon the due date.
8. Rollover ratio refers to the percentage of total rollover amounts to total credit card receivables. While total receivables relate to the month-end position, total rollover amounts are based on balances recorded at the statement date.