In a bold move reflecting the shifting landscape of China's credit card market, Xinyu Bank has officially implemented a new regulation raising the credit card holding limit for individual customersThis change is particularly noteworthy given the prevailing environment characterized by a general slowdown in growth within the credit card sector, intensified competition among financial institutions, and increasingly stringent regulatory oversight.

The decision to increase the limit comes on the heels of a challenging first half of the year for Xinyu Bank’s credit card operations, during which it witnessed declines across three critical metrics: new card issuance, transaction volume, and loan balanceThis slump highlights a broader trend within the industry, as banks grapple with the realities of market saturation and consumer hesitation in borrowing.

Xinyu Bank has been struggling with a persistently high bad loan ratio, effectively a "cancer" undermining the foundations of its business

This situation has not only led to a wave of consumer complaints but also poses a significant challenge—how to achieve short-term performance goals while ensuring long-term health and sustainability for its credit card division.

On December 12, Xinyu Bank rolled out its new policy allowing individual customers to hold up to ten valid credit cardsThis increase from the previous limit of six cards was implemented to respond to growing customer demandHowever, the rationale behind this adjustment suggests deeper market considerationsIt aims to capture market share during a period when competitors are tightening their credit card issuance policies in response to new regulatory measures.

Notably, compared to other leading issuers like China Merchants Bank, which allows up to 20 cards, Xinyu Bank needed to recalibrate its strategy to remain competitiveThe increase in card limit appears as an attempt to attract more customers and enhance its competitive edge in a market where many banks are reducing their active cardholder bases.

Additionally, the bank may be signaling a shift in its internal business strategy

Economic uncertainties over the last few years have led to fluctuations in consumer income, diminishing the repayment capacity for some cardholders, and causing an uptick in delinquenciesBy raising individual card limits, Xinyu Bank aims to diversify risk exposure and sustain growth despite mounting pressuresCredit card operations have become a crucial focus in their retail banking strategy, especially during challenging economic conditions.

Xinyu Bank launched its credit card services as early as 2004. By 2020, its outstanding credit card loan balance had exceeded 400 billion yuan, positioning it among the top card issuers in ChinaHowever, the past few years have ushered in a wave of challenges, including increased market competition, regulatory constraints, and shifting economic landscapesThe result has been a significant deceleration in card issuance growth, coupled with problems such as rising delinquency rates and a surge in customer complaints.

From a theoretical perspective, raising the credit card holding limit could translate into higher revenues for the bank, yet it introduces a series of potential risks

A heightened capacity for card holding elevates the bank's exposure to credit riskIf newly issued cards aren't effectively activated or used frequently, it could lead to resource waste and increased post-loan management costsDuring difficult economic times, ensuring the quality of new accounts becomes a significant challengeFailure to manage this risk could see the non-performing loan (NPL) ratio escalate further, especially given that Xinyu Bank already faces high delinquency rates.

Moreover, whilst an immediate increase in card limits may draw new customers, the quality of these new accounts could pose a riskExisting cardholders often find five or six credit cards sufficient for their daily spending habitsHowever, consumers with a need for more cards might be indicative of riskier financial behavior, including potential cash-out activitiesWhat seems like catering to customer needs might inadvertently enable some undesirable spending patterns, raising concerns about the bank's risk mitigation strategies.

In a marketplace where competitors have established higher card limits, whether Xinyu Bank’s actions trigger a cycle of reckless competition remains to be seen

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Without prudent marketing strategies, they risk harming both their brand reputation and long-term viabilityExcessive competition, particularly during downturns in the credit card sector, threatens to squeeze profit margins and undermine the health of the industry as a whole.

The recent adjustment in card limits by Xinyu Bank represents a somewhat aggressive tactic designed to navigate a rapidly changing market environmentThough this strategy could offer short-term financial benefits, it may expose risks in risk management, service quality, and long-term strategic planning.

As this year unfolds, Xinyu Bank has witnessed an astonishing decline in its three core credit metricsA stark 63.3% reduction in new card issuance and an 18.2% drop in transaction volume underlines a debilitating first half of 2024. With credit card transaction volumes plummeting, the resultant decline in fee income heavily impacts profitability, showcasing a market that is becoming less dynamic.

From 2022 to 2023, while the cumulative card issuance continued to grow modestly, the overall metrics tell a different story

The loan balance decreased below 400 billion yuan for the first time since 2020, clearly reflecting a diminished borrowing appetite among consumers.

Additional factors contributing to this downtrend include market saturation among credit card products, which has led consumers to become more discerning in their choicesXinyu Bank has found it increasingly difficult to acquire new customers effectively, an issue exacerbated by recent economic instabilityThis instability has led many consumers to curtail their spending and borrowing behaviors, further contributing to the bank's decline in key metrics.

Particularly concerning is the bank's ongoing struggle with bad loansSince 2019, Xinyu Bank's NPL ratio has consistently outpaced its competitors, garnering interest from regulators and the market alikeDespite various risk management initiatives, including creating hybrid debt collection strategies, the bank's delinquency rates remain persistently high, putting pressure on its business growth.

This situation demands the attention of Xinyu Bank's leadership as they work to balance market demands against the necessity for robust risk management

Below-target results have compelled the bank to set aside more impairment provisions, directly diluting profit margins, while also tarnishing its reputation in a fiercely competitive marketThe year 2023 saw nearly 303,096 complaints relating to credit card issues alone, only heightening the urgency for improved operational protocols.

In summary, Xinyu Bank's recent decision to lift the credit card limits exemplifies a reaction to its mounting challenges but serves as a stepping stone towards examining its longer-term growth directionThe pivotal question of how the bank can optimize its cardholder structures, enhance service quality, and maintain an edge in market competition remains integral to the success of its strategies going forwardThe imperative against a backdrop of consumer complaints and falling metrics, will be to ensure that their efforts do not merely yield fleeting benefits at the cost of systemic organizational health.