In keeping with Central Bank directive:

Licensed banks agree to reduce credit card interest rates

Sanjeevi Jayasuriya

All licensed banks have agreed to reduce their interest rates on credit cards in keeping with the directive issued by the Central Bank of Sri Lanka. The banks issuing credit cards will reduce the interest rates in the range - 24-36 percent.

The reduction is expected to come in to effect in early February. The maximum interest rate will be 36 percent and customers will benefit from this move, Payment Card Industry Association of Sri Lanka Chairman, Gehan Dias told Daily News Business.

Credit card transactions have a cyclical effect and the processing of credit card statements is done on a regular basis. Generally, there are high volumes of transactions with various promotional activities in December and April. The reduction of interest rates cannot be implemented immediately due to this trend, he said.

The use of credit cards has dropped over the years due to the high prices and the reduction in bank interest rates. Customers have consolidated their debts and this has resulted in a drop in the use of credit cards, he said.

The reduction in credit card interest rates will not have a dramatic increase in card usage immediately. Most of the cardholders limit their credit card use to purchase essential items unlike in the past where they spent on luxury purchases such as dining out, he said.

With the economy improving, an increase in credit card use could be anticipated. Many banks have expanded their operations in the North and the East and there are opportunities for the credit card industry to grow. There is untapped potential where the banks could capitalize on. However, banks should promote the acceptance of credit cards among traders and merchants to make this facility a popular mode of payment, he said.

Credit cards could be popularized with growth in the tourism industry as hotels and shops will accept credit cards. There has been a decrease in the number of frauds committed due to the misuse of credit cards.

Although there has also been a downturn in bad debts over the past one-and-a-half years the industry has seen a recovery due to cardholders settling their bills.

The Credit Information Bureau activities have also encouraged customers to meet their commitments, he said. The credit card market is relatively small as there are over 900,000 credit card users in a working population of seven to eight million. There are over 650,000 cardholders with the potential to grow. Steps need to be taken to encourage merchants and traders to accept credit cards to enable the wider use of credit cards as it is an easy mode of payment with less risk, he said.

The promotion of the use of credit cards is an important aspect in an economy as it records the transactions. Customers have the choice of selecting the credit card that suits their needs. The difference in the interest rates charged by banks is due to some banks having a credit card centre as a profit centre and others as a value addition product. How each bank fund the credit card advances portfolio, operational structure and amount of promotions to add value to customers, he said.