CBA SAYS DEMAND DROPS IN CREDIT CARD PORTFOLIO, ARREARS LOW

SYDNEY, Jun 26, 2008 (AsiaPulse via COMTEX) -- CBAUF | Quote | Chart | News | PowerRating -- Commonwealth Bank of Australia Ltd (CBA) (ASX:CBA) said it expected slowing demand in its credit card portfolio to continue for the short to medium term, as cost pressures curbed consumer spending.

But CBA did not expect to experience a material rise in defaults on credit card repayments.

The pressure on its portfolio was more related to a fall in consumer confidence rather than customers' ability to repay, CBA general manager of cards Stephen Karpin said.

"So I don't think we're seeing in our portfolio tension around the ability to repay debts," he told a credit card conference in Sydney.

"There's a genuine confidence issue.

"You're seeing prices in some fundamental areas of consumption going up.

"So naturally after a very benign period where there was a high level of confidence - you were always going to have your job and you were also going to get that income increase - it's a more uncertain environment.

"That is a business challenge for us in the short to medium term perhaps.

Mr Karpin said a far greater concern for anyone managing a credit card portfolio was a longer supression of economic activity that translated into high unemployment.

"We don't see that ... we see a more moderated and tempered approach to discretionary spending," he said.

GE Money managing director card solutions Skander Malcolm said arrears in the finance company's credit card portfolio were "a little bit more than normal".

But while there was no notable increase in loan defaults, there was an increase in their severity, Mr Malcolm said.

CBA's Mr Karpin said the bank had lost market share to new market entrants offering low-cost cards.

But he said maintaining a successful business was also about forming good customer relationships, and not just about price.

Mr Karpin warned that low-cost card providers would find it difficult to survive if they didn't win a greater number of customers.

"If you're running on a lower margin and you're sub-scale you're really going to be challenged in the future market," he said.

GE Money recently introduced one of the most successful low cost cards into the Australian market.

GE's Mr Malcolm agreed scale was important to its survival and noted that two or three low-cost card providers had come and gone in the UK market in the late 1990's.

A similar thing could happen in Australia, he said.

Other players about to enter the Australian market include HSBC and retailers David Jones and Woolworths.

Several big local banks have responded to the influx of the low-cost cards from the likes of GE Money and Virgin Money by offering low-cost cards of their own.

(AAP)

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