Profit-making Capability Of Credit Card And Avoidance Of Credit Card Debt Crisis

Credit card business enjoys advantages on consumer finance for banks with its high profits and large number of cardholders. In current worldwide recession, the profit-making model of credit card business is in preference by many domestic card-issuing banks. This study referred to the experience of credit card’s debt crisis happened in South Korea, Hong Kong, and Taiwan to review whether the phenomenon would happen to the domestic card-issuing banks in China. Based on the facts that credit card has the characteristics of credit expansion and fictitious economy, this study collected semi-annual financial variables of card-issuing banks in China from2007to2011, and macro-economic data of China during the same period, supplementing with related economic data of, and policies launched by, South Korea, Hong Kong and Taiwan, as well as other countries or territories, and used standardized and stepwise regression analysis and analysis of literature as research methods, and the results obtained are as below:First of all, using the rate of return as the dependent variable to analyze the financial variables of the card-issuing banks and macro-economic variables of the nation, the results obtained are as follows:It shows no direct relationship between the credit card proportion of business accounting in a bank and the profitability of the bank. Also, it shows undetermined positive and negative results between the bank’s profitability and the ratio of banks profit overdue credit loans (gross)/credit loans (gross)(that is, the proportion of overdue credit) as well as the non-performing loan. The operating incomes rate appears no abnormal changes. The results of the other four financial ratio variables, including loans and deposits ratio, per share net profit before tax, the debit ratio, and the year-end stock value are in line with the expectation of this study. In addition, the financial tsunami has positive and significant relationship with the ratio of assets/net rate of return; that is, the global financial tsunami won’t affect the ratio of bank’s assets/net rate of return. The ratio actually is higher when in the event. Secondly, the countermeasure policies adopted by South Korea, Hong Kong and Taiwan in dealing with the credit card problems were not fundamental solutions, and many of them were only a stopgap of "first aid" program through "learning by doing" approach before the administration could find better laws and regulations. The business objectives of the card-issuing banks should be on finding a balance between the profit and the risk. The card-issuing banks, however, did not strict control and manage the consumer’s, or the cardholder’s, credit quality. The card-issuing banks gradually brought its operation patterns from the real economy into a stage of fictitious economic bubble. Once the economy boom ends, and the government adopts an austerity policy resulting in the burst of credit bubble, the card-issuing bank might be in peril.Finally, the answer to the question of whether a credit card crisis will happen in China is definitely "No". In the past two decades, this has been prooved to be an effective model for government leadship and management. The economic growth leading by export-trading and the implementation of economy liberalization and reform have undoubtedly made China a stronger and wealthier country. With its world leading position in foreign reserve, even if economy crisis happens in China, it will be a "soft landing" and is in a moderate and amendable level.