Thu, Dec 08, 2005 page10

• Banks, experts against card restrictions

  DEBT MANAGEMENT A proposal before the legislature would tighten controls on consumer credit, and card companies and other big lenders are unhappy about it

  • By Amber Chung / STAFF REPORTER
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  A planned cap on lending rates for credit-payment tools is unpopular among foreign investors and academics, who took the possible regulatory tightening measure as a regressive move that would adversely affect Taiwan's banking sector and free-market economy.

  Lawmakers decided on Tuesday night to push forward a proposed amendment to the Banking Law (銀行法), which would cap the interest rate spread between credit/cash card loans and savings at 10 percent, in comparison with an average 16 percent to 17 percent currently, in an attempt to relieve debt-ridden borrowers of growing financial burdens.

  Borrowers, meanwhile, would be required to repay a minimum of 20 percent of monthly payables, up from the current 2 percent to 5 percent, according to the motion.

  

  A man demonstrates one way to stop credit card debt in this Nov. 7 file photo. In response to the growing problem of young people piling up huge debts, experts are advising them to admit they have a problem, negotiate debt repayment plans with their banks and to avoid applying for new cards.

  PHOTO: KAO CHAO-FEN, TAIPEI TIMES

  The proposed amendment is likely to pass the third reading in the legislature tomorrow.

  "Taiwan's politicians will only increase downside investment risk if they cap the card-lending spread at 10 percent, to ease the burden of deeply indebted borrowers," Jesse Wang (王嘉樞), head of research at BNP Paribas Securities (Taiwan) Co, said in a report released yesterday.

  Likening the initiative to fighting fire with gasoline, Wang predicted that the possible regulatory restriction could suddenly turn all local credit and cash-advance card operations into money-losing businesses, and lead financial stocks to drop at least 10 percent.

  Taiwanese retail investors would therefore suffer a loss of net worth, while consumer defaults could rise sharply as borrowers find it difficult to obtain re-financing liquidity, he said.

  The nation's financial stocks slid 1.2 percent on the Taiwan Stock Exchange yesterday in the wake of lawmakers' decision.

  Shares of Chinatrust Financial Holding Co (中信金控) and Taishin Financial Holding Co (台新金控), parent companies of the nation's two biggest credit-card issuers, plummeted by 5.11 percent and 5.73 percent to NT$26.95 and NT$18.10, respectively.

  "This is an intervention in the pricing of the free market mechanism," said Shen Chung-hua (沈中華), director of the department of money and banking at National Chengchi University.

  The restriction would cause lenders to tighten their lending policies, which could be helpful for youngsters who borrow to shop, but would have a greater impact on adults who are in real need of funding, Shen said.

  Both Shen and Wang said the biggest beneficiaries could be underground lenders -- loan sharks -- as they are not restricted by the law.

  Financial regulators do not seem supportive of the proposed cap either. Financial Supervisory Commission spokesman Lin Chung-cheng (林忠正) told the USTV cable station yesterday that the credit- and cash-card business may shrink by 30 percent to 40 percent, or NT$300 billion, if the restriction takes effect.

  Taiwan's lending rates are not especially high, compared with Singapore's 24 percent, Hong Kong's 26 percent, South Korea's 19 percent to 24.9 percent and Japan's 29.2 percent, the commission said last month.

  To control potentially increasing costs, consumers may have to start paying annual fees or increased surcharges, and could face shrinking preferential services in the future, said one of the nation's top credit-card lenders, who asked to remain anonymous.
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