Existing and new customers can now borrow more money through credit cards and personal loans from commercial banks as the State Bank has enhanced the limit of loans by a massive 40 to 50 percent.
This is an incentive for customers that are using credit cards and are looking to avail personal loans as interest rates have fallen substantially in the past few months following the policy rate of the central bank, which is likely to attract customers towards commercial banks.
According to the State Bank of Pakistan (SBP), the borrowing limit through personal loans and credit cards has been increased to Rs. 3 million from Rs. 2 million under clean credit limit.
The borrowing limit for prime customers has been enhanced to Rs. 7 million from Rs. 5 million through credit cards and personal loans. This limit is also revised up for customers under the clear and secured loan criteria.
Banks are also required to ensure that overall credit card and personal loan or financing limits, both on secured and an unsecured basis, availed by one person from all banks in aggregate should not exceed Rs. 7 million at any point.
The banks shall put in place comprehensive criteria defining “Prime Customer” on the basis of track record, creditworthiness, and financial position, duly approved by their Board of Directors.
The banks are also encouraged to set internal limits for clean financing to prime customers keeping in view their risk appetite and other factors. However, aggregate exposure on prime customers should not exceed 20% of the total exposure of the respective portfolio i.e. 80% exposure on account of credit cards and personal loans (separately) should comply with the limits prescribed for regular customers.
In Pakistan, commercial banks charge various rates of interest on personal loans and credit cards depending on the value of the loan and the period of repayment. However, usually, the rates are high except for a few banks which offer low-interest rates by aggressive marketing of their products mainly for credit cards and incentives.
In the backdrop of COVID-19, the central bank has come up with a relief scheme for credit card holders and those that availed personal loans to get their installments deferred or rescheduled or restructured according to their plans decided with their respective banks.
According to SBP, overall loans by commercial banks lent through credit cards stood at Rs. 46.8 billion by the end of May 2020, falling from Rs. 49.1 billion at the end of 2019.
In Pakistan, the number of credit card holders stood at 1.7 million, which is merely 4 percent of the payment cards or plastic money used in the country.
The personal loan portfolio of the banking industry saw little growth, increasing to Rs. 212 billion by May-end from Rs. 209 billion recorded in December-end.
The reduction of the interest rates coupled with increased borrowing limit may push up the loan portfolio of the banks and it will provide much-needed financial support to the customers to manage their personal expenses.