Visa sees a bright future for Taiwan

With abundant and easily availabile credit cards in Taiwan, is it possible that a default loan crisis -- as occurred in South Korea last year -- could happen here?

For Christopher Clark, Visa International's country manager for the Greater China Region, Taiwan, the answer is no, because Taiwan has thorough regulations and mechanisms in place to prevent such an occurrence.

"I'm optimistic about Taiwan's credit card sector for a number of reasons," Australia-born Clark, 40, who speaks fluent Mandarin, told the Taipei Times last week in Taipei.

Clark took his current position in April, 2002. Prior to joining Visa International, he worked at the National Australia Bank for 14 years, and was responsible for strategic management and market development of the consumer banking sector.

He said Taiwan's revolving credit system has helped the nation achieve a low cash-advance ratio of less than 5 percent, indicating good self-control by consumers on their spending.

South Korea has no revolving credit mechanism, so cardholders need to repay the entire loan when payment is due, Clark said. Insolvent cardholders therefore had to apply for other credit cards, and use cash advances to clear their debts. This snowballed into the default loan problem, he said.

In addition, Clark said, South Korea also lacked an institution like Taiwan's Joint Credit Information Center (金融聯合徵信中心), which provides card issuers with detailed information on an applicant's credit history and ability to repay loans, in order to avoid making bad loans.

Late last year, Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's, warned that the increasing availability of and reliance on credit cards and cash-advance cards could raise the risk of bad loans for Taiwan's banking sector over the next two years.

Taiwan Ratings said growing credit-card usage in Taiwan has been consistently outstripping the growth of the nation's GDP. Credit-card transactions as a percentage of GDP have grown sharply since 1995 -- from around 3 percent in 1995 to nearly 10 percent in 2002.

The default rate on all credit cards was less than 4 percent, but this number may be low, because government statistics do not include information on loans overdue by 30 days or the amount of restructured loans, Taiwan Ratings said.

But Clark disagreed with this assessment, saying that the authorities have paid a great deal of attention to the credit card crunch South Korea encountered, and also asks for the industry's opinion on a regular basis.

The number of credit cards in South Korea swelled after the government encouraged the use of credit cards to boost domestic consumption following the Asian financial crisis in 1997.

Excessive credit expansion, however, generated a serious bad loan problem. South Korean banks set aside 11 trillion won (US$9.46 billion) last year to cover bad loans, including 5.3 trillion won against bad credit card assets, the Financial Supervisory Service said last month in a report. The country's largest credit card issuer, LG Card Co, faced bankruptcy and required around 3 trillion won to tackle the problem.

To ensure the health of Taiwan's credit card sector, the Ministry of Finance last October amended the Regulations Governing Institutions Engaging In Credit Card Business (信用卡業務機構管理辦法), which requires local financial institutions to separate their credit-card business units financially.