Banks Will Raise Credit Card Ceiling

The measure is in line with CBI efforts to institutionalize the use of credit cards as a resourceful and accessible alternative to microloans.

"Credit cards have the potential to help curb demand for loans to bank customers, raise the efficacy of the loans and ultimately allow the people from various social strata to access bank facilities," reads a press release on the CBI website.

"Credit cards should gradually replace microloans of all types," the regulator said.

Iranian banks issue credit cards, debit cards and gift cards, though the first type is a rarity limited to VIPs. Banks pay huge amounts in loans but small loans account for a meager part of the total lending.

Lenders were allowed to offer credit cards with a 500-million- rial ($2,000) ceiling before the CBI's new decision.

As per regulations, banks can offer only one credit card to each customer, though customers can hold credit cards of multiple banks so long as the maximum credit does not exceed 2 billion rials.

Card holders will not pay interest if they clear their debt within the grace period. If not they will be given 12-36 months to settle their bills at 18% -- the lending rate cap set by the Money and Credit Council.

This is not the first time the central bank is trying to promote credit cards. Previous attempts ended in failure mainly because of private bank's reluctance to get involved in the credit card business for hitherto unknown valid reasons.

Promoting credit cards demands fundamental changes, especially under the current framework, which seems not to be profitable enough for bankers. Banks argue that they earn more from loans.  

The IT department of the CBI is also working on a platform to help banks determine the credibility of customers, which could encourage banks to expand issuance of credit cards.

Private Lenders Averse

Data released by Shaparak Company, shows that 266,043 credit cards were used at least once during the month to June 22. This means that credit cards account for a tiny 0.22% of the 119 million active bank (debit) cards.

The number of active credit cards, however, indicates a growth of 125.4% on the month before.

Bank Melli Iran, owned by the government, alone had a 34.14% share of active credit cards during the period.

State-owned Bank Sepah was next with 17.95% followed by Bank Mellat and Bank Saderat Iran, two privatized banks, with respectively 16.67% and 9.5% share of credit cards in the third calendar month.

Saman Bank topped the list of private banks in terms of active credit cards, accounting for 2.77% of the total, followed by Sina Bank with 1%. The share of other private banks barely exceeded 1%.

Rise in the use of credit cards could be due to a recent CBI decision allowing owners of the so-called Justice Shares to use their shares as collateral for getting credit cards from banks up to 60% of the share portfolio.

Justice Shares are shares of government-owned companies that were given to the six lowest income deciles of Iranians ten years ago. Shareholders were not allowed to sell the shares until recently.