Bank faces card penalty

The Bank of Overseas Chinese (華僑銀行), which is 20 percent owned by the government, must improve its bad loan ratio on cash-advance cards by the end of this month or face punishment by financial authorities.

According to statistics released by the Financial Supervisory Commission, as of the end of June the bank had the country's highest non-performing loan (NPL) ratio at 8.443 percent in its cash card business, compared with the average ratio of 1.36 percent among the nation's 34 card issuers.

The bank is followed by the Chinese Bank (中華銀行) at 3.947 percent, Hwatai Bank (華泰銀行) at 3.763 percent, Far Eastern International Bank (遠東商銀) at 3.283 percent and Tainan Sixth Credit Cooperative (台南六信) at 3.128 percent, according to the agency.

Financial authorities set new rules in the middle of June specifying that banks with an NPL ratio between 3 percent and 5 percent are required to submit improvement plans.

Banks with an NPL ratio between 5 percent and 8 percent would be admonished and required to rectify the situation in three months, while those institutions with an NPL ratio topping 8 percent by the end of this month would be forced to suspend issuing new cards.

However, the Bank of Overseas Chinese ceased issuing new cash-advance cards in April, although its more than 11,000 cardholders still can use its services, spokeswoman Charlotte Tsai (蔡荷英) said yesterday.

"We are hurrying to write off bad loans this month, and we're confident that the ratio will drop to under 3 percent at the end of August," Tsai said.

Even so, the commission said the government will keep monitoring the bank and demand it remedy the problem within the next six months, said Jong Huey-jen (鍾慧貞), deputy director general of the Bureau of Monetary Affairs under the commission.

After Cosmos Bank (萬泰銀行) pioneered in launching the nation's first cash-advance cards in July 1999, the market quickly developed into a situation where 34 banks jostled for market share.

As of the end of June, the three largest card issuers are Cosmos Bank with 1.38 million cards, Taishin International Bank (台新銀行) with 776,365 cards, and Chinatrust Commercial Bank (中國信託) with 531,928 cards.

It is expected that the cash-card market will jump to NT$230 billion by the year's end, up from June's NT$193.5 billion, according to Taishin International Bank.

To clean up bad loans on credit cards, the commission said the same regulations are also applied to those credit card issuers whose NPL ratio is in excess of 8 percent.

The commission's statistics showed that by the end of June, the Central Trust of China (中央信託局) reported the highest bad-loan ratio at 12.38 percent, followed by Chung Shing Bank (中興銀行) at 8.3 percent and the Chinese Bank at 7.76 percent.

The banks are required to address the issue by the end of October or face a ban on issuing new cards.