Banks are going to great lengths at the moment to ensure that the rising default rate on credit cards doesn’t spin out of control.
Because of rising prices and the economy slowing down, the default rate has started to creep up – but bankers are keen to put a stop to it as quickly as possible; especially due to the nature of unsecured lending on credit cards.
Although the increase is only marginal, standing at 1.75% for 2013-14, compared with 1.5% in the previous fiscal year, card issuers have started taking precautionary steps already.
This is because banks want to avoid a repeat of the situation in 2009. At this time, the real estate sector became sluggish, meaning there was a hike in defaults and that due to the credit crunch, there was a lack of liquidity which meant banks were more reluctant to offer personal loans to their customers.
Card issuers do not want to see the situation returning to this stage, where the default rate is at an unmanageable level – and so although it is only early days, this is why they are tackling it head on.
There is also the fact that they have learnt from their previous experience how financial crimes increase in periods of economic crisis – as was reported back in 2009. At the time, the Dubai Financial Services Authority commented that they had seen an increase in the number of suspicious transaction reports (STEs) and that as a result of firms growing, that they expected to see more.
Recently, the rise of online banking has meant that cybercriminals are turning to hacking and then blackmailing companies to pay them, or they then threaten them that they’ll disclose sensitive data. Sometimes they can demand such large amounts of money as even thousands of pounds.
In September of last year, a Dubai-based gang specialising in online credit card fraud were arrested after police seized a total of 166 forged credit cards.
Lt-Gen DhahiKhalfan said at the time that Dubai Police officers have been trained well to tackle cybercrimes, and advanced techniques used by criminals who use modern technology to commit crimes.
But in spite of all this, experts are saying that there is no major concern right now and that the banks are simply being prudent. Some are even saying that in the current climate, personal loans are easier to get – however, this tends to vary from bank to bank and depends very much on your personal financial situation. For example, it’s still hard for those with an imperfect credit history to get a loan.
They have also said that this time the default hike isn’t due to reckless spending, but has simply been caused instead by the economy. And it simply means that banks are just concerned with cleaning up their credit portfolio.
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