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Credit card defaults on the rise

CREDIT card default in China more than doubled year on year in the second quarter, but analysts said the risk is still within control.

The value of outstanding defaults of more than six months surged 131.3 percent from a year ago to 5.77 billion yuan (US$845 million) at the end of June, the People's Bank of China said.

On a quarterly basis, the defaults grew 16.2 percent.

"Credit card defaults grew rapidly alongside with increasing card circulation in China," said She Minhua, a Haitong Securities Co analyst. "However, the default rate in China is still low when compared with western markets."

In China, defaults accounted for 3.1 percent of total outstanding lending on credit cards, up 0.7 percentage points from a year ago.

The default rate in the United States is around 7.5 percent.

"When banks accelerate their credit card issuance, it doesn't come as a surprise to see rising defaults," She said.

Banks had issued 162.6 million credit cards by the end of June, up 32.9 percent from a year earlier.

The combined line of credit available on cards rose 69.3 percent year on year to 1.17 trillion yuan by the end of June, while outstanding credit jumped 77 percent to 187.9 billion yuan in the same period.

China is encouraging non-cash payment options such as credit cards to boost domestic consumption.

And credit cards are expected to be the second most lucrative retail credit business for lenders by 2013, following individual mortgages, said McKinsey & Co in an earlier report.


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