Gulf consumers owe $6.6bn in credit card debt

Total outstanding debt down from $6.7bn in 2010, but number of cards expected to rise
Gulf consumers owe $6.6bn in credit card debt
credit cards, credit crisis, credit card fraud
By Claire Ferris-Lay
Mon 05 Sep 2011 02:57 PM

Consumers in the GCC owe an estimated $6.6bn in outstanding credit card debt, show new figures from London-based research and advisory firm Lafferty Group.

An average of $8,361 is owed on each of the 7.9 million credit cards in the region while GCC lenders have been forced to write off 6.8 percent of the total amount owed, the UK firm told Arabian Business.

The overall amount owed on credit cards this year has fallen from $6.7bn in 2010 while the number of credit cards increased from 7.6 million the previous year, driven by a focus on the wealthier sector of the market, said Lafferty.

“Several new premium cards have been launched over the last couple of years. The premium sector is generally perceived by issuers as low risk as cardholders tend to spend more money, and due to their higher income pay of their debt more quickly and at higher rates,” Andrew Neeson, head of research at Lafferty Group, told Arabian Business.

This more cautious approach adopted by banks could stifle growth, said Neeson.

“A more cautious attitude to lending to foreign workers will stifle growth in certain key markets in the GCC. The bank's focus on premium customers, particularly in the credit cards market is significant and probably the correct decision to make.”

The UAE Central Bank in May rolled out curbs on retail lending in a bid to avoid the excessive lending practices seen during the Gulf state’s boom years.

The new ruling capped personal loans at 20 times a borrower’s monthly salary and said repayment periods should not exceed 48 months.

Monthly installments for all loans, including personal, car, housing loans and credit cards, must not exceed 50 percent of a customer’s gross salary and any regular income, the central bank said.

The global financial crisis and Dubai's debt woes have slowed lending growth in the OPEC member. Private sector credit growth was flat year-on-year in May compared with rates of over 50 percent in 2008.

Lafferty said the amount written off by Gulf lenders declined from 8.15 percent in 2010 and 11.40 in 2009 but still remained at an unhealthy level amid the global financial downturn.

“Generally speaking, a normal level in a healthy and competitive developed market is no more than 3 percent,” said Neeson.

“The economic crisis has resulted in huge increases in the loss rate around the world.  The GCC countries are mirroring similar rates in the US and UK where it is 10.7 percent and 9.5 percent respectively for 2010,” he added.

GCC consumers currently owe an estimated $39.5m on their mortgages, up 6.2 percent compared to the previous year, while total non-mortgage credit increased 4.7 percent to $154.7m, said Lafferty.

The figures are based on research conducted by Lafferty’s World Cards Intelligence unit, which compiles intelligence on credit cards and consumer finance across 65 markets worldwide.

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