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Defaults on card debt rise, financial watchdog says

The number of individuals defaulting on their debts has risen in the wake of banks' aggressive promotion of credit payment tools in recent years, the nation's financial regulator acknowledged yesterday.

As of August, 400,000 people had defaulted on debts generated from credit cards, cash-advance cards and unsecured loans, failing to pay off loans that were overdue by more than three months, according to figures released by the Financial Supervisory Commission yesterday.

Up to 110,000 credit-card holders' cards were suspended as of September, compared with at least 80,000 four years ago, according to the commission.

"We do see a trend in that the number [of suspended credit cards] has been rising in recent years ? in part because the volume of cards issued has grown significantly," commission spokesman Lin Chung-cheng (林忠正) said in a press conference yesterday.

To help relieve pressure on debtors, the Bankers' Association (銀行公會) convened a meeting yesterday with the eight top credit and cash-advance card issuers, including Chinatrust Commercial Bank (中國信託), Taishin International Bank (台新銀行), Cosmos Bank Taiwan (萬泰銀行) and Cathay United Bank (國泰世華銀行), which account for half of the market, to offer debtors help lines and form an inter-bank negotiating platform to arrange payback plans.

As of last month, there were 4.56 million credit cards in circulation issued by 51 financial institutions with revolving credit amounting to NT$488.3 billion. The non-performing loan (NPL) ratio edged up by 0.03 percentage points from August to 2.23 percent, the commission's banking bureau said last week.

For the same period, 3.73 million cash-advance cards were in circulation, issued by 33 banks, with total loans of NT$315.2 billion. The NPL ratio increased by 0.51 percentage points to 2.11 percent from a month ago, it said.

Industry watchers have expressed growing concern over the bad-loan problem in the consumer sector. Sherry Lin (林淑娥) director of Non-Japan Asia Equity Research at Credit Suisse First Boston (Hong Kong) Ltd, forecast that non-performing loans could continue to rise -- peaking early next year -- which could impact the profitability of lenders that are focused on retail banking, such as Chinatrust and Taishin.

Morgan Stanley analyst Lily Choi expressed a negative view of the sector in a report released yesterday, citing rising consumer credit charge-offs, weak margins and slowing fee-income growth.

Cathay United on Monday told investors that it had suspended issuance of new cash cards to maintain asset quality.

Chinatrust reportedly added another NT$1.7 billion to its bad loans after financial authorities adopted a stricter definition in July that included loans overdue for more than three months.

Lin said the stricter definition could burden the banks financially, but the impact may be limited, as lending by credit cards and cash-advance cards amounted to about NT$800 billion, accounting for less than 5 percent of total lending in Taiwan last month, according to the official.
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