Cash card market slump set to continue for now

Taiwan's credit and cash-card market continued to see deterioration in overall card-asset quality during October although there is no sign of a South-Korean style credit crunch, according to a report issued by Merrill Lynch Taiwan Ltd.

The cash card charge-off amount by Taishin International Bank (台新銀行), the nation's largest cash-card issuer with a 28-percent market share, last month jumped to NT$1.2 billion (US$35.7 million) from NT$778 million in September. Chinatrust Commercial Bank's (中國信託) charge-off amount dropped slightly to NT$335 million from NT$382 million during the same period.

"We expect sector charge-offs to peak late in the first to second quarter of next year; most of the problems are still concentrated in Taishin and, to a lesser extent, Chinatrust," said analyst Sophia Cheng (程淑芬) in the research house's latest report issued last week.

Statistics released by the Financial Supervisory Commission's Banking Bureau showed that the total lending among the 33 cash-card issuers reached NT$315.2 billion as of the end of September, with the average non-performing loan (NPL) ratio at 2.11 percent.

Revolving interest recorded by the 51 credit-card issuers totaled NT$488.3 billion by September, with the NPL ratio standing at 2.23 percent.

Cheng said of all the major cash-card players, Taishin, Cathay United Bank (國泰世華銀行), Hua Nan Commercial Bank (華南銀行) and E.Sun Bank (玉山銀行) posted higher charge-offs during October. Write-offs by major credit card issuers -- Cathay United Bank, E.Sun Bank, Anshin Card Services (安信信用卡) and Chinatrust -- were also on an upward trend.

"In our view, the October numbers should set a benchmark for upcoming months, we expect card quality to continue to worsen until the first or second quarter of next year," the report said.

Despite such warnings, Cheng was firm that the retail banking problem is manageable and will not lead to a credit crunch in Taiwan. Card debt per person in Taiwan, including credit and cash card, is much smaller than that of South Korea, she said, adding that it represents just 44 percent of South Korea's peak level or two-thirds of its current level.

In addition, Taiwan's sophisticated credit bureau and stronger banking system are conducive to countering the threat of growing bad loans, the report said.

To further tighten controls on card development, the legislature's Finance Committee last week passed a motion, demanding that credit and cash-card issuers be prevented from issuing new cards if their NPL ratios surpass 2.5 percent, much lower than the 8 percent currently implemented.

This new measure, pending the Financial Supervisory Commission's approval before taking effect, is expected to place more of a burden on financial institutions and see minor players pull out of the market, following the example of Taipei-based Bank of Overseas Chinese (華僑銀行), which disposed of its cash-card customers in April.