According to Hong Kong Monetary Authority, credit-card debt rose to $62 billions in the last quarter of 2001 while the charge-off rate on credit card loan reached a record-high 8.27 per cent. At the same time, the number of personal bankruptcies surged to 13,000 last year. These rising figures are not coincidence. Nowadays borrowers opt for bankruptcy to have their liability discharged. Our bankers, having their profits substantially eaten up by the bad debts, are now calling for stricter bankruptcy law and the establishment of a positive credit bureau.

Over the last few years, the bad economy nurtures the proliferation of credit card business. Business activities contracted during the recession, demand for bank loans shrank at the same time. Being stacked with idling cash, banks turn to the credit card line to find more borrowers. Credit cards are readily issued simply with the verification of one's identity and address. To compete for more clients, credit limits are greatly extended without much guarantee needed. These aggressive marketing campaigns offer too much easy credit to people without the means to pay it back, such as full-time students, whose credit limits in most (if not all) situation are far greater than full-time workers.

Before 1997, when the economy boomed, Hong Kong people got used to spending money faster than they were earning it. After the slump of the economy, having their earning capacities greatly eroded, many people have to live on overdrafting into their credit card accounts. To meet the repayments, applying for another credit card to cover the debt seems to be a quick solution. However, when the vicious circle of borrowing cannot go further, the borrowers have to apply for bankruptcy. The irresponsible spending habits and unwillingness to live up to commitments, coupled with a decline of personal shame and societal stigma attached to bankruptcy all contribute to the credit debt delinquencies.

Bankers blame the bankruptcy law to be too lenient which indirectly exacerbates their bad debt problem. Under the Bankruptcy Ordinance, once declared bankrupt, they can be discharged from all debts. And in four years' time, their previous borrowing record can be cleared and can start borrowing again. This encourages those over-burdened by debts to escape liability. Bankers now propose an extension of the rehabilitation period from four years to eight. To a certain degree, this can slow down the bad debt cycle but it does not stem to root of eradicating bad faith borrowing. The real remedy lies in a stringent credit card issuing policy of the banks.

The aggressive marketing strategies of banks should be abandoned. The set of prudent guidelines laid down in the Code of Banking Practice, issued by the banking industry in 1997, should be closely followed. Under the code, card issuers should act responsibly and refrain from issuing card to those who may not have independent financial means. Checks of the applicant's identity, income and past dealing records are suggested to be conducted prior to the issuance of credit cards. Credit limit granted should be kept within the individual's repayment ability. Unfortunately, the Code does not have any statutory force, hence these guidelines are blatantly ignored.

The Code also recommends a bankers' references center which collects information about borrowers' delayed repayments, credit applications, unauthorized use of credit card and account holding duration. These provide for the means to assess a card applicant's financial position, his repayment ability and assist in resolving the problem of the same cardholder owing debts to several banks. However, the use of the cardholder's data is subjected to great limitation due to Personal Data (Privacy) Ordinance. Personal data cannot be used beyond the purpose it is collected and the use of it is deemed to be unlawful without the prescribed consent of the data owner.

Bankers are urging legislators to make laws for a positive credit bureau which serves similar functions as the bankers' reference center, but is statutorily authorized to share clients' information. However, obstacles lie ahead for establishing such bureau. Consensus among the banking industry must firstly be reached. Some banks are still reluctant in sharing their commercial data with their competitors. Strong opposition from the Privacy Commissioner for Personal Data has to be overcome before such bureau can be set up.