Premier tells bankers he can't stop bill

A controversial bill to cap the lending rates of credit and cash-advance cards prompted foreign bankers yesterday to express their serious concerns to Premier Frank Hsieh (謝長廷). But Hsieh reacted lamely, saying that there is nothing he can do about it.

"I do not fully support [the proposed restriction]," Hsieh said in a question-and-answer session during a joint luncheon co-hosted by the American Chamber of Commerce in Taipei (AmCham) and the European Chamber of Commerce Taipei (ECCT) yesterday.

"It is the Legislative Yuan, not the Executive Yuan, that put forth the proposed amendment to the Banking Law (銀行法)" out of concern about possible social problems, Hsieh said, suggesting that the executive does not have much say in this matter.

But the premier said that there is a need to overhaul the nation's credit-lending system, as more than 50,000 young people are currently trapped in a credit crisis and looming bad-loan issues because of over-lending.

Lawmakers decided on Tuesday night to push forward the proposed amendment that would cap the interest rate on credit or cash-card loans and savings at 10 percent, compared with the existing average of 16 percent to 17 percent, in an attempt to relieve indebted borrowers of growing financial burdens.

"[The regulation] will significantly increase the NPL [non-performing loan] ratio in Taiwan ... and foreign investment in Taiwan's consolidating banking sector will be reduced," said Paul Leech, chairperson of the ECCT's banking committee and also president and chief executive officer of HSBC Ltd in Taiwan.

Most important of all is that banks will cut lending to the low-income population section, as banks will try to minimize risks because of reduced rewards, Leech said.

The Financial Supervisory Commission yesterday reiterated its opposition to the proposed rate cap, citing five possible significant blows to the nation's finance sector and economy if the proposal passed the third reading in the legislature today.

First, passing the planned restriction will indicate a financial move backward, leading to a likely downward adjustment of Taiwan's national ratings, commission spokesman Lin Chung-cheng (林忠正) said yesterday.

Second, this will cut the business volume and therefore earnings of a group of local banks, which could face a downward credit re-rating by ratings services in the future, Lin said.

The restriction will not only reduce foreign investors' willingness to put their money into Taiwan, but also directly impact private consumption and in turn drag down economic growth, as a credit crunch at banks will make it difficult for borrowers to obtain funding, according to Lin.

He estimated that some 3 million to 4 million cardholders will be affected by this legislation as banks will start to cut back on granting loans.

Finally, up to 400,000 already indebted credit or cash-card holders will face escalating repayment pressure and those who are in real need of capital would be forced to turn to underground loan sharks, which will be a bad development for the nation's already embattled financial sector, Lin said.