Dollar spending on credit cards drops to 13-month low in August

Infographics: TBS

All types of credit card transactions experienced a sharp decline in August, particularly dollar spending, which dropped to a 13-month low.

This decline is attributed to factors such as instability throughout the country following the ouster of the Awami League government amid a mass uprising, liquidity shortages in some banks, and disruptions in the financial sector.

According to a Bangladesh Bank report, dollar transactions using credit cards amounted to Tk373 crore, compared to Tk418 crore in the same month last year.

The head of the card division at a leading bank told TBS, "The use of credit cards has significantly declined in July and August. Banks faced challenges in conducting normal operations due to persistent inflation, which reduced consumer spending, alongside the unrest across the country. As a result, card transactions have fallen."

"Moreover," he added, "the issuance of new credit cards in the banking sector has also decreased considerably during these two months. But since September, the situation has been gradually returning to normal." 

According to the central bank report, credit cardholders engaging in cross-border transactions primarily used their cards abroad at department stores, which accounted for 27% of the transactions. 

Other notable categories included retail outlet services at 17%, pharmaceuticals at 12%, transportation at 10%, business services at 7%, clothing at 7%, and various other categories at 20%.

According to country-wise cross-border transactions, the USA accounted for the majority, with 20.17% of all transactions. The remaining transactions were distributed among various countries, with India at 14%, the UK at 9%, Thailand at 9%, Singapore at 8%, Canada at 7%, Malaysia at 4%, the UAE at 4%, Australia at 3%, the Netherlands at 3%, and Ireland at 3%.

Mohammad Ali, managing director of Pubali Bank, told TBS, "Many Islamic banks faced issues with processing transactions through their credit cards, leading to significant problems. As a result, many merchants have stopped accepting payments via POS terminals because they struggled to withdraw cash from banks suffering from liquidity shortages.

"Additionally, several troubled banks have halted cash withdrawals through credit cards. Following the change in government, many foreign nationals working in Bangladesh returned to their home countries, and a substantial number of them previously relied on credit cards for transactions. Consequently, overall transaction volumes have shown negative growth."

The report stated that last August, local currency transactions via credit cards dropped to an 11-month low, with purchases using credit cards totalling Tk2,332 crore. In comparison, Tk2,249 crore was transacted in September 2023.

The report further mentioned that credit card transactions at department stores decreased to Tk1,180 crore in August from Tk1,196 crore in the previous month. Similarly, there were decreases in cash withdrawals, fund transfers, transportation, professional services, and government services transactions.

On the other hand, transactions related to retail outlet services, utilities, drugstores and pharmacies, clothing, and business services increased in August compared to the previous month. 

At the same time, foreigners also reduced their credit card payments at various places in Bangladesh in August, spending only Tk111 crore. In August of last year, their expenditure was Tk218 crore, indicating a reduction of more than 96%.