Some banks raise credit card fees amid greater competition

OCBC latest to raise late payment charges in move seen as mirroring DBS' last month

ATMs of OCBC, DBS, Citibank and UOB.
ATMs of OCBC, DBS, Citibank and UOB.PHOTO: ST FILE

Banks have been raising various fees and charges on credit cards as pressure on profitability and greater competition come into play.

The latest hike came last Thursday when OCBC Bank raised the late payment charge for most credit cards from $80 to $100. And the late payment fee for its NTUC Plus! Visa credit card was raised to $100 from $60 on the same day.

The bank last raised charges in January last year, when late payment fees rose from $60 to $80 for personal credit cards except Plus! Visa and NTUC Plus! Visa.

It told The Straits Times that the June 1 hikes "will ensure a uniform set of late payment charges across all OCBC's personal credit cards".

DBS Bank raised its fees on May 1. An outstanding balance of more than $50 on a card now incurs a late payment charge of $100, up from $80. Annual fees for its POSB Everyday Card were also raised on May 1 - from $128.40 to $192.60 for the principal card, and from $64.20 to $96.30 for each supplementary card.

Mr Vinod Nair, chief executive of personal finance portal MoneySmart, said a survey it conducted showed that those banks with the most popular credit cards - OCBC, Citibank and DBS-POSB - have some of the highest fees and interest rates.

"OCBC's latest decision to raise its late fee charge to $100 seems to be mirroring DBS or POSB raising the late fee charge to $100 last month," he said.

DBS said: "We advise customers to plan ahead to avoid incurring late payment charges, by setting up payment alerts or calendar reminders, or to set up services such as automatic Giro payments."

United Overseas Bank - which said last November that it had about 20 per cent market share in terms of card billings for the previous 12 months here - has kept its late payment charge at $60 for at least three years.

But its interest rate on outstanding balances was hiked to 25.9 per cent at the end of last year from 25 per cent in 2014, the previous time it raised the rate.

Mr Duckju Kang, an analyst at personal finance adviser ValuePenguin, said that when banks determine how much interest rate or late payment fee to charge, they generally maintain a spread against a reference rate such as Sibor (Singapore Interbank Offered Rate).

"Banks measure their profitability in terms of their net interest margin (NIM), the spread between the rate they earn on loans and the rate they pay on deposits," he said.

"When Sibor spiked in 2015 when rates in the United States began to rise, and again this year, albeit slightly due to foreign exchange fluctuations, Singapore banks suddenly found themselves with a higher cost basis. In order to maintain their NIM and profitability, they've to hike their various interest rates accordingly."

Daiwa SB Investments (Singapore) analyst He Yuxuan noted that the fee increases could be attributed to the desire of banks to maintain or improve operating margins on the back of higher business costs - which may be from things such as compliance and infrastructure.

Mr Nair said: "Another reason these fees are increasing could simply be that this is the banks' way of discouraging card holders from spending beyond their means.

"After all, it's one thing to earn revenue on penalties, but banks will ultimately lose out if a card holder defaults."

A version of this article appeared in the print edition of The Straits Times on June 05, 2017, with the headline 'Some banks raise credit card fees'. Subscribe