Indonesian Banks Battle to Sign Up New Customers for Credit Cards

Jakarta. As the economy gains steam, banks are growing more aggressive in marketing credit cards to increasingly wealthy consumers, targeting 25 percent increases on the year in the number of credit card users.

This battle for new customers has led to aggressive market tactics, including steep discounts at many retailers. But consumer watchdogs warn that banks are also loosening their lending criteria and relying on a credit bureau that even the banks themselves acknowledge is outdated. The result, to nobody’s surprise, is that default rates are on the rise.

The economy grew 5.9 percent during the first half of the year, and is expected to pick up during the second half and next year.

In June, consumer research company Nielsen released the results of a survey that found that Indonesians are the second-most confident people in the world about their job prospects and near-term financial futures.

Enter local banks such as Bank Central Asia, Bank Mandiri and Bank Negara Indonesia, and international banks such as Citibank.

BCA, the nation’s biggest lender by market value, is hoping to have 2.3 million credit card users by the end of 2010, after reaching two million last year.

BCA card transactions last year totaled Rp 20 trillion ($2.22 billion), and the bank expects this year’s transactions to total Rp 26 trillion, according to credit card facilities manager Santoso Lim.

State-owned BNI, meanwhile, is hoping to top 1.9 million users by the end of this year, up from 1.5 million last year, according to the bank’s director of consumer lending, Darmadi Sutanto.

BNI hopes total transactions will reach Rp 10.5 trillion this year, up from Rp 7.5 trillion last year, Darmadi said.

State-owned Bank Mandiri is seeking a 25 percent surge in credit card users, from 1.6 million last year to two million by the end of this year.

It is targeting total transactions this year of Rp 13.6 trillion, up from Rp 10.5 trillion last year, the bank’s coordinator of consumer finance, Mansyur Nasution, told the Jakarta Globe.

Citibank is also targeting 25 percent growth in the number of credit card users this year, up from 1.6 million last year, country manager Shariq Mukhtar said.

As these banks compete for customers, they have taken to offering any number of bonuses for consumers who use their credit cards. And, judging by the reactions of consumers, such tactics are working.

BCA, for example offers discounts on credit card transactions at Starbucks and Cinema 21. Mandiri cooperates with businesses such as Hypermart and state-owned airline Garuda.

BNI’s arrangements include a deal with South Korean retailer Lotte Mart. Retailer group Mitra Adiperkasa is among the businesses that Citibank has agreements with.

Steve Marta, general manager of the Indonesian Credit Card Association (AKKI), told the Globe that average monthly transactions on credit cards nationwide had risen 10 percent this year, from Rp 10 trillion to Rp 11 trillion.

“This shows that consumers’ purchasing power has risen,” Marta said.

Rising along with it, however, has been the number of defaults, he said.

During the first half of this year, the nationwide default rate on credit cards jumped to between 8 percent and 9 percent, up from 6 percent for all of 2009 and 2.5 percent in 2008, he said.

Fadil Hasan, a retail business analyst at the Institute for the Development of Economics and Finance, said many banks were becoming overly lax in their rush to sign up new customers.

“Banks are aggressively marketing their credit card facilities, often without doing a thorough check of customers’ credit history,” Fadil said.

All the banks contacted by the Globe denied that their lending criteria had grown too lenient. But the banks said that Indonesia’s credit rating system needed improvement.

Sigit Pramono, chairman of the Indonesian Banks Association (Perbanas), said this year that banks had approached Bank Indonesia about creating their own credit bureau to replace the central bank’s, which bankers frequently say is out of date and often contains limited information about credit applicants.

However, Sudaryatmo, a representative of the Indonesian Consumer Protection Foundation (YLKI), said consumers also needed to be smarter when it came to credit cards.

“Consumers have to determine whether they only want or actually need the credit card, because these cards will inspire consumers to spend more, and even sometimes to overspend,” he said.