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Foundation says rate gap unfair

"The public is neither confident in the local property market, nor in the investment environment. ... I'm afraid this will trigger another round of bubble economy in Taiwan."

Wu Chung-chi, an economics professor at NTU

The Consumers' Foundation (消費基金會) yesterday accused the nation's banks of making exorbitant profits by failing to lower lending rates to correspond with lower interest rates on savings.

"Among the nation's top 10 banks, the gap between lending rates and interest rates on savings accounts ranges from over 4.7 percent to as high as 7.2 percent," the foundation's chairman Yu Ming-kuo (游明國) said yesterday at a seminar to discuss the issue in light of the recent interest-rate cut.

Since December 1999, there has been 13 interest-rate cuts.

Yu, moreover, yesterday cited a legislative resolution, which stipulates that the gap between bank lending rates and savings rates should not exceed 3 percent.

"This is monopoly," said Wu Chung-chi (吳忠吉), a economics professor at National Taiwan University and the foundation's honorary chairman.

Wu said that the interest-rate cut was part of the government's scheme to use monetary policy to manipulate the stock and capital markets in the name of economic stimulation.

He therefore urged the central bank to pressure banks into lowering lending rates in the best interests of the public.

Wu, moreover, yesterday questioned whether the government's moves to get the public to inject capital back into the economy would work, fearing the result may see public savings move abroad.

"The public is neither confident in the local property market, nor in the investment environment," he said.

"I'm afraid this will trigger another round of bubble economy in Taiwan," Wu added.

In rebuttal to Wu's argument, James Yue (尤錦堂), deputy director general of the central bank's banking department, said that the nation's banking sector has been liberalized to allow banks the freedom to set their own rates.

Chen Kun-der (陳昆德), deputy general manager of Chinatrust's (中國信託) consumer banking group, also defended the bank's inaction in lowering lending rates. He said that, given the depreciating property market, the bank is shouldering great risks in lending to borrowers, who may stop paying interest and principle after the values of their mortgaged properties drop.

"The cost to deal with non-performing collaterals is huge on banks," Chen said, adding that Chinatrust has aimed to increase competitiveness by cutting down the cost of financial services.

Sharing a different view, Chiu Hui-mei (邱惠美), a senior consumer ombudsman at the Cabinet's Consumer Protection Commission, yesterday said that few banks are willing to cut their income by initiating lending-rate cuts and benefiting their clients in accordance with market forces.

Singling out revolving interest rates on lending deals through credit cards as an example, she said that these rates, of 18 to 20 percent, were set when the savings rates were still as high as over 9 percent. But now that the savings rates have dropped to just over 2 percent, the revolving rates have unreasonably remained the same, she added.

She also urged banks to make clear their reasons for not lowering lending rates, so that the public could be convinced of the legitimacy of the wide interest-rate gap.
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