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Moody’s Salutes Bank Indonesia’s New Credit Card Restrictions
Dion Bisara | January 18, 2012

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International rating agency Moody’s Investors Service says the central bank’s new rules on credit cards are positive for Indonesian banks and will help improve their underwriting standards and eventually the quality of the lenders’ assets.

Bank Indonesia issued new regulations on credit cards on Jan. 6. The new rules set the minimum monthly income for cardholders at Rp 3 million ($330) and the maximum credit limit at three times monthly income.

Anyone who makes less than Rp 10 million a month is now only allowed to receive credit cards from two issuers. People who make more must be individually assessed by banks.

In a bid to avoid situations where cardholders are trapped in mounting debt, Bank Indonesia banned the use of credit cards to purchase items bought through loans, such as cars or houses.

Moody’s applauded the central bank’s move, saying the new rules would help manage risk in the fast-growing sector.

The new regulations, it said, will reduce lenders’ risk of giving credit card loans to low-income customers, allowing banks to improve the quality of the loans in their “credit card portfolios.”

“Among our rated Indonesian banks, those most affected are those most active in credit cards,” Moody’s said in a statement released on Monday.

These banks included Bank Mandiri, the country’s largest by assets, Bank Central Asia, Bank Negara Indonesia, CIMB Niaga and Bank Permata.

“We expect that these policies will help eventually lower the level of bad debt that the credit card segment currently carries, as well as the threat of future loan loss from lax underwriting practices,” Moody’s said.

Despite credit card lending making up less than 2 percent of the total loans made by the nation’s lenders, the ratings agency said, reliance on plastic has “increased sharply in recent years.”

It said the fast-rising figure reflected Indonesia’s growing middle-income population as well as “banks’ aggressive marketing campaigns.”

The use of credit cards by Indonesians has increased in the past two years. At the end of 2009 there were only 12 million credit cards in circulation; that was 13.6 million and 14.6 million at the end of 2010 and 2011, respectively.

The circulation numbers equate to an average of 100,000 new cards issued per month in 2011, doubling the average of 50,000 in 2009.