Dramatic slowdown in credit card debt

Credit card advances have slowed to 2 per cent in the March year. Photo / Herald on Sunday

The growth in outstanding credit card balances has shrunk to its lowest level since records began, indicating that tougher economic times may be teaching Kiwis to live within their means.

The growth in advances outstanding on all New Zealand credit cards was 2 per cent for the year to March.

The next-nearest low point was 17 years ago, just after the 1992 recession, when annual growth slid to 2.1 per cent in November of that year.

The slowing in growth of credit card advances has been dramatic. This time last year they were still increasing at around 8 per cent annually.

Now Reserve Bank statistics show that apart from a slight fillip in January, outstanding balances have been static or falling since October. Advances outstanding fell by $53 million to $5.218 billion in March, a 0.3 per cent fall on February.

The figures come as the economy contracts - gross domestic product shrank 0.9 per cent in the last three months of 2008, the fourth consecutive quarterly fall and the weakest quarter since September 1992.

Westpac chief economist Brendan O'Donovan said the figures were a strong sign of the pressure consumers were under, particularly in an environment of job uncertainty.

But the outstanding-advances number did not show the whole picture as it included people who put the groceries or petrol on their card to gain rewards points and the interest-free period, then paid it off.

Interest-bearing outstanding advances on personal cards actually grew 7.5 per cent to $3.6 billion for the year to February.

"So that's not telling you quite as good a story. There's still plenty of households out there that are under enormous financial pressure ... They're getting the credit where they can and that's still through credit cards."

Simon Tong, chief executive of electronic payments operator Paymark, said the figures confirmed the trend towards debit.

Credit card growth had declined and the use of eftpos cards had increased. The split between debit and credit card use was now 80/20, where it was usually more like 75/25. "It suggests that people are using money they've got and we've probably seen that trend since Christmas really."

He believed that New Zealanders were responding appropriately to the times.

GOING DOWN

Growth in outstanding balances on credit cards:

March 2009: 2 per cent to $5.128 billion

March 2008: 8.3 per cent to $5.107 billion

March 2007: 5.6 per cent to $4.714 billion

March 2006: 8.3 per cent to $4.466 billion

March 2005: 7 per cent to $4.136 billion