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Fitch upbeat over future of consumer credit sector

"The consumer financing and credit card markets in Taiwan should continue to see robust growth in the next three to five years with an estimated 20 to 30 percent growth rate each year."

Jonathan Lee, director of Fitch Ratings' financial institution

Fitch Ratings, an international ratings agency, yesterday expressed a bullish view of the nation's consumer financing and credit card markets for the future.

"The consumer financing and credit card markets in Taiwan should continue to see robust growth in the next three to five years with an estimated 20 to 30 percent growth rate each year," Jonathan Lee (李信佳), director of Fitch Ratings' financial institution, told a seminar yesterday.

The number of cardholders grew 19-fold from 2 million in 1993 to 38 million last year -- with each adult holding an average of 2.3 cards each -- indicating the market may be saturated and grow between 5 percent and 10 percent in the near future, Lee said.

The Bureau of Monetary Affairs under the finance ministry, however, previously said that there were 8.6 million cardholders, each owning an average of four credit cards.

To back his arguments, Lee said that the local consumer finance sector had a low credit risk profile, while cardholders' indebtedness was low compared with the US and South Korea, which suffered a major credit card crisis between 1999 and 2002.

According to Lee, Taiwanese had the lowest financial gearing -- the ratio of liabilities to assets -- at an estimated 24 percent last year, compared with 51 percent in South Korea and 45 percent in the US.

"Therefore, a Korean-style crisis is less likely in Taiwan," Lee said.

Lee said that he believed that the nation's revolving balances, which averaged NT$24,300 per adult last year, or just 5 percent of average annual income, were at a safe level.

The nation's credit-card bad-loan ratio is slightly above 4 percent, which Lee said indicated that the quality of credit-card lending was at an acceptable level and improving. The finance ministry will also soon tighten its policies on credit-card write-offs and information disclosure.

Fitch, however, takes a more cautious view of the quality of highly competitive cash card lending. The 180-day delinquency ratio for such cards was 2.6 percent as of February, according to Lee.

Nevertheless, Lee lauded Taiwan's establishment of the semi-official Joint Credit Information Center (聯合徵信中心), which provides both positive and negative information on consumers.

The ratings agency believes that the credit bureau's comprehensive information was one of the reasons why Taiwanese banks suffered less than those in other Asian countries during the 1997 financial crisis.

But Lee expressed concern over Taiwanese card-issuers future profitability in the credit-card business, where competition in an over-crowded market was stiffening, and was sure to drive up operating costs and cut profit margins.
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