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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Negative effects to Banking Sector due to credit card and pawning rate cuts

Negative effects to Banking Sector due to credit card and pawning rate cuts

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shihan 93


Senior Equity Analytic
Senior Equity Analytic
As you all know credit card i=max interest is 18% (down from 28%) pawning is 10%
full details - https://www.newsfirst.lk/2020/08/20/maximum-interest-rate-on-credit-cards-reduced-cbsl/?fbclid=IwAR2HrA6YGMpaqahWkGfRFkChxxnV0dcXToAgagBVe0n6o4AzPsyimA9jmfU

This is a big blow to all banks (specially NTB). Please trade wisely.



Last edited by shihan 93 on Fri Aug 21, 2020 1:37 pm; edited 1 time in total (Reason for editing : headline spelling)

samaritan


Moderator
Moderator
The exorbitant interest rates discouraged credit card users in the past. So, increase in usage can set off the short fall in interest revenue. Like lower interest rates stimulated credit growth and the banking sector has performed well.


_________________




The biggest risk in life is not taking any risk at all.

dayandacool likes this post

shihan 93


Senior Equity Analytic
Senior Equity Analytic
@samaritan wrote:The exorbitant interest rates discouraged credit card users in the past. So, increase in usage can set off the short fall in interest revenue. Like lower interest rates stimulated credit growth and the banking sector has performed well.
@Samaritan , Your explanation is related to fixed rates and long term loans, but for credit card interest rates, pawning , OD, and penalties decrease means reduction of huge profit for banks (specially NTB ans Sampath). Also all the people who can have credit card alreavdy have.  therefore, this is very good general public who use credit cards and debt instruments and very bad for banks who mainly used unsecured short term debt (credit cards, ODs and etc). I hope small investors won't get burnt at least this time

samaritan


Moderator
Moderator
@shihan 93 wrote:
@samaritan wrote:The exorbitant interest rates discouraged credit card users in the past. So, increase in usage can set off the short fall in interest revenue. Like lower interest rates stimulated credit growth and the banking sector has performed well.
@Samaritan , Your explanation is related to fixed rates and long term loans, but for credit card interest rates, pawning , OD, and penalties decrease means reduction of huge profit for banks (specially NTB ans Sampath). Also all the people who can have credit card alreavdy have.  therefore, this is very good general public who use credit cards and debt instruments and very bad for banks who mainly used unsecured short term debt (credit cards, ODs and etc). I hope small investors won't get burnt at least this time
All who can have c/cards may already have BUT they curtailed spending due to the exorbitant interest rates charged by banks. Now a lower interest rate for c/cards and a higher tax relief can stimulate more spending.
Furthermore, the bank's borrowing cost is also at an all time low as FD rates have come down by about 60%. So, reducing int rates on c/cards, OD etc will not make a significant impact on profit margins.


_________________




The biggest risk in life is not taking any risk at all.

dayandacool likes this post

dayandacool

dayandacool
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@samaritan wrote:
@shihan 93 wrote:
@samaritan wrote:The exorbitant interest rates discouraged credit card users in the past. So, increase in usage can set off the short fall in interest revenue. Like lower interest rates stimulated credit growth and the banking sector has performed well.
@Samaritan , Your explanation is related to fixed rates and long term loans, but for credit card interest rates, pawning , OD, and penalties decrease means reduction of huge profit for banks (specially NTB ans Sampath). Also all the people who can have credit card alreavdy have.  therefore, this is very good general public who use credit cards and debt instruments and very bad for banks who mainly used unsecured short term debt (credit cards, ODs and etc). I hope small investors won't get burnt at least this time
All who can have c/cards may already have BUT they curtailed spending due to the exorbitant interest rates charged by banks. Now a lower interest rate for c/cards and a higher tax relief can stimulate more spending.
Furthermore, the bank's borrowing cost is also at an all time low as FD rates have come down by about 60%. So, reducing int rates on c/cards, OD etc will not make a significant impact on profit margins.
That's true. Businesses are more focus on volume than large margins these days. Banks are no exception (Financials for DFCC and SFIN are examples). Ability of public spending was really down due to many reasons during covid era and this could well be a blessing in disguise for the banking and finance sector.

samaritan likes this post

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