The Covid-19 outbreak caused heavy losses to production and business activities, and accordingly, the number of unemployed also increased sharply, all cautious for credit card default might not be redundant.
Fall into the debt net for using a credit card
N.T.H, a new employee at a joint-stock commercial bank in Hai Ba Trung District, Hanoi, said that every day when opening her eyes, she only thought about how to have money to repay the banks.
H said when the card staff of a foreign bank invited her to open a credit card with many incentives such as refunds when spending, up to 50 percent discount when using some services, she earlobe and agreed.
The process of using the card was only swiping, not having to see how much money left in the wallet, so customers did not feel sorry. It was not until the paying deadline that she realised that she had used a lot of money.
H was simultaneously using the credit card of the bank that she worked in with quite high debt. Every month, when getting paid, she automatically deducted the salary from the bank. The rest was just enough for her personal expenses. Thus, when being informed of the credit card debt payment of that foreign bank, she didn’t know how to pay.
Dare not to ask for family money, H decided to open a credit card of another bank to withdraw cash, pay debts from credit cards of foreign banks.
The new staff salaries were meager, so it was not enough to cover the credit card debt and the three credit cards cycle of cash withdrawal payment cash withdrawal refund throughout the year. Then another foreign bank had a promotion programme to offer bicycles to customers opening a new credit card. Then, the family members asked her to open the card to get the present. In turn, when running out of money to pay for credit cards of the other three banks, H withdrew cash from the newly opened bank to pay the debt.
Debts increased day by day on credit cards of four banks. Looking forward to the end of the year, she would be rewarded with a decent amount of money to pay back the debt, H received the notice that because the Bank was in the restructuring phase, the bonus was only symbolic.
H continued, after returning to work after the New Year holiday, the Covid-19 pandemic appeared. Only one month after going to work, employees of the whole bank secretly shared about the tricky business situation, so the bank could not exclude the plan of resignation. Accordingly, the staff would take turns to work and take a break, and the salaries would be cut down, H said.
Was it tough to open a credit card?
In fact, opening a credit card was effortless. Customers just had to go to a bank then offered to make a credit card. Immediately there would be a guide from the bank, giving instructions carefully to the procedures, and customers would have a card in a week.
Even without having to go to the bank, customers just needed to call the demand notice, the bank would immediately send staff to the place to support customers with card opening procedures.
Theoretically, the card limit would depend on the work or solvency of each person, but the flexibility in increasing the card limit for customers was very simple.
N.H.D, in Ba Dinh District, Hanoi, said that a few years ago, she opened a credit card of a bank to receive the present.
Each month, she spent a few million dong on the card, even though the card had a limit of up to 50 million dong per month. Yet the bank employee still called to ask if she wanted to raise the limit to 80 million dong per month.
At the challenging time of the epidemic, using a card seemed to be more secure than spending cash. However, D did not use up to 20 million dong per month, regardless of raising the limit to 80 million dong per month, D said.
Notably, on December 25, 2019, the State Bank of Vietnam (SBV) issued Circular 28/2019/TT-NHNN, amending Circular 19/2016/TT-NHNN on bankcard activities that would take effect from April 1, 2020.
The Circular clearly stated that secondary cardholders, who were from 15 years old to under 18 years old that did not lose or have limited civil act capacity, could use debit cards, credit cards and prepaid cards without the written consent of the legal representative as old regulations.
In fact, the number of customers who used credit cards like D was not rare; the number of young customers who were caught up in the spiral of using before paying was not also small.
According to economic experts, gradually, the cardholders might fall into the ‘debt net’ due to excessive use of credit cards and, at some point, would become ‘credit card slaves’ or default.
According to Card data from SBV, by the end of 2018, the number of cards in circulation reached 97 million cards (an increase of 8.3 percent compared to the end of 2017) and in 2019, there were 99 million active cards.
And lessons need to be cautious
After the Asian financial crisis from 1997 to 1998, the Korean government encouraged banks to issue as many credit cards as possible to boost consumption.
By 2002, the number of cards in circulation increased by 2.7 times, to 105 million. When the card crisis hit, an average adult in South Korea had 4.6 credit cards and debt burden of up to $100 billion.
At the 2003 credit card crisis, millions of people defaulted, and the Bank of Korea (BoK) was forced to injected money into the bond market. However, the Korean people were accustomed to spending aggressively so they could not soon become momentary.
In China, where the Covid-19 epidemic took many lives and caused heavy losses in production and business activities in the first months of 2020, overdue credit debts in February increased by about 50 percent compared with the same period last year.
Qudian Inc, a Beijing-based online lending company, said the maturity limit for payment increased to 20 percent in February from 13 percent at the end of last year.
China Merchants Bank Co., one of China’s largest consumer credit companies, announced it was forced to pause the lending of credit cards after overdue loans had increased rapidly. An estimated 8 million Chinese people were unemployed in February 2020.
In Vietnam, the Ministry of Labour, War Invalids and Social Affairs had just published the latest report on labour and employment situation affected by Covid-19. Accordingly, the number of people applying for unemployment insurance as of February 2020 was 47,164, an increase of 70 percent over the same period last year.
Talking to the Securities Investment Newspaper, an SBV leader said that the system had not recorded any cases of default related to credit cards.
In fact, it was too early to predict the end like 2003 in Korea, but if credit card debt remained high for a long time, it would inevitably increase the risk of financial stability.
Notably, at present, economic experts believed that, while the Covid-19 epidemic continued, credit card defaults could be a threat to the country if a global financial crisis occurred once again.
Debt-based spending had not become a common practice for people. However, consumption trends based on ‘future cash flows’ were gradually forming in a part of young people.
The control and issuance of cards according to personal financial ability was the right thing to do, limiting the situation of high card issuance, causing some banks to loosen their control and follow the number.
