Banks Lower Credit Card Interest Rates To Help Customers Cope With Weakening Economic Indicators

Kuala Lumpur, February 12, 2009 – On behalf of its commercial bank members, The Association of Banks in Malaysia (ABM) is pleased to announce a downward revision of the interest rate to 13.5 percent per annum from the current 15 percent for “Tier-I” credit cardholders who promptly settle their monthly minimum payments for retail purchases for 12 consecutive months.

“Tier-II” cardholders who promptly settle their minimum payments for 10 months or more in a 12-month cycle will also benefit as the relevant interest rate will be reduced to 16 percent per annum from the current 17 percent. In addition, cardholders who do not fall within the two categories and who are generally termed “Tier-III” cardholders will see the interest rate for them come down to 17.5 percent per annum versus the current 18 percent.

To make it even easier for credit cardholders given the challenging year ahead, the present late payment fee of a minimum of RM10 or 1% of the total outstanding balance, subject to a maximum of RM100 will be revised to a minimum amount of RM5 and a maximum of RM75.

“The banks have listened and taken a lead in the region in effecting such reductions even though existing local credit card charges are already amongst the lowest in Asia (they range from 18% to 42% elsewhere in the region). Thus, the revisions not only demonstrate a reasonable, responsive and dynamic Malaysian financial system but are also in line with the underpinning principle of the tiered interest rate scheme which was introduced last year, that is, to encourage good repayment habits and financial discipline,” explained ABM Chairman, Dato’ Sri Abdul Hamidy Abdul Hafiz.

Banks hope these latest measures will motivate credit cardholders to diligently make at least the monthly minimum payment of 5 percent of their total outstanding balance promptly since credit cardholders will now stand to have significant savings in the form of interest rate differentials of up to 4 percent when moving up the Tiers, i.e from 17.5% for “Tier-III” to 13.5% for “Tier-1”. The reductions in interest rates should give rise to savings for all credit cardholders to better enable them to make the minimum payment. It is also envisaged that more “Tier-I” credit cardholders can now afford to plan to settle their amount outstanding in full monthly. The different incremental margins of reduction in interest rates, Tier to Tier, of 1.5 percent (between “Tier-III” and “Tier-II”) and 2.5% (between “Tier-II” and “Tier-I”) also serve to reward prudent repayment habits and instil strong management of personal finances.

These measures will take effect from March 31st 2009 to enable the banks to implement the requisite system changes and will be subject to further review from time to time and in any event, after a period of 12 months.

Dato’ Sri Abdul Hamidy went on to clarify that apart from funding costs, the other large components of costs in respect of credit cards are credit risk (non-performing credit) particularly since the amount outstanding is unsecured, fraud risk, infrastructure, administration and customer services costs. Credit risk costs would be expected to climb in a worsening economic environment. Under the circumstances, banks will be monitoring credit risk costs closely in the months ahead. “The public must still exercise great caution and control over personal spending and live within one’s means,” he said.

As of December 31st 2008, total outstanding credit card debt owed by Malaysians stands at RM23 billion.

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