Wed, Dec 24, 2003 - Page 10 News List

Ratings agency sees high consumer debt for 2005

TOO MUCH, TOO YOUNG The increasing popularity of credit and cash-advance cards could have calamitous consequences in the next two years, Taiwan Ratings said

By Amber Chung  /  STAFF REPORTER

The increased availability and use of credit cards and cash-advance cards may increase the risk of bad loans for the nation's banking sector over the next two years or so, Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's, warned yesterday.

"According to Standard & Poor's experiences in overseas mature markets, it usually takes around two years for the losses on credit cards and cash-advance cards to materialize," said Clementine Kiang (江斐若), a structured finance ratings associate director at Taiwan Ratings.

"For Taiwan, where consumer lending is an emerging market and providers are aggressively expanding their business, the problem loans may take more than two years to surface," Kiang added.

The number of credit cards issued amounted to 680 million as of October this year, although those in circulation totalled only 366 million cards, according to statistics from the Bureau of Monetary Affairs under the Ministry of Finance.

Taiwan Ratings said the growth of credit-card use in Taiwan has been consistently outsripping the growth of the nation's GDP. Moreover, the percentage of credit-card transactions to GDP has grown sharply since 1995 -- from around 3 percent in 1995 to nearly 10 percent last year. The credit-card transaction value totalled NT$713 billion in the first nine months of this year, it said.

Correspondingly, the credit, including outstanding loans from cash-advance services, has outstripped other traditional consumer lending and totaled NT$505 billion in the first 10 months of this year.

The bureau estimated the default rate on all credit cards was less than 4 percent.

"But this number may be an underestimate because government statistics do not include the information on loans overdue by 30 days or the level of restructured loans," Kiang said.

"The drive to attract overdue loans by offering lower interest rates, a policy that has been aggressively promoted by banks in an effort to expand the customer base, may also boost the actual overdue loan ratio," she said.

In response to the report, banks said Taiwan's credit-card business had been developing for 30 years and has been booming for the past 10 years.

"If there are overdue-loan problems, it should have exploded" already, said Michael Chang (張智銓), Chinatrust's senior vice president in credit card affairs.

Chinatrust, the nation's leading credit card issuer with 5.4 million cards in circulation and transactions valued at NT$163 billion, accounted for 22.8 percent of local market share.

"The business of credit cards is one that has developed in a stable way in Taiwan," Chang said.

Potential hazards also exist in the emerging business of cash-advance cards, Taiwan Ratings said.

Cash-advance cards allow cardholders to borrow money without collateral through automatic teller machines.

The business began in 1999 when Cosmos Bank Taiwan (萬泰銀行) launched its George & Mary Card, and it has boomed in the past two years. As of August, cash-advance cards in circulation totalled 3.8 million, with an outstanding debt of NT$145 billion.

Taiwan Ratings said the revolving credit of cash-advance cards can mask problem loans or a deterioration in a borrower's repayment ability.

"Most issuing banks carry a minimum monthly payment as low as 2 percent of the total amount owed, which may lead to increased risk," Kiang said.

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