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Hong Kong, July 5, 2019 - Standard & Poor's Global Rating said July 4 that China's credit card debt has risen rapidly, and there are some worrying similarities between them and the history of the credit card boom that other parts of Asia have experienced that eventually evolved into a credit card debt crisis. Similar to past scenarios, the seemingly good profits and fierce competition in the area of unsecured consumer loans in China are driving some lending institutions to take higher risks. S&P Global Rating released a report today, "Will China's credit card boom repeat the old mistakes of the credit card debt crisis? 》 In the area of consumer credit, some of China's most radical industry participants may face greater credit losses, he said.
Yu Liang, S&P Global Rating Analyst, said: "We believe that China's banks have aggressively entered the consumer finance business, accompanied by an increase in risk. The credit scoring and credit behavior models used by Chinese banks or financial technology companies have not undergone a comprehensive test of the downturn cycle of consumption. Nowadays, Internet lending has brought about changes in the industry, and also made the risk present new characteristics. We anticipate that small institutions and new entrants in the area of unsecured consumer loans may actively participate in competition and further engage in more risky customer groups."
In six years, China's credit card debt (including related cash lending businesses) has increased more than six times, albeit from a relatively low base. We expect that in the next two years, the growth rate of unsecured consumer loans will be 20% per year, slightly lower than that of the past 20%.
The level of growth is reminiscent of Hong Kong in 2002, South Korea in 2003 and Taiwan in 2006, where the credit card boom ended badly. They are similar to the current situation in China, including: (1) the weakening of demand for corporate loans, prompting banks to expand their retail lending business; (2) a relaxed monetary environment; (3) fierce competition in the market and increased risk preferences of institutions.
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