Sat, Dec 10, 2005 - Page 10 News List

TAIEX gains as credit bill is shelved

UNDER FIRE The proposed limit on credit-card lending rates was put on hold until next week after the Democratic Progressive Party withdrew its endorsement of the proposal

By Amber Chung  /  STAFF REPORTER

The local bourse rebounded yesterday after lawmakers decided at the last minute to shelve the proposed cap on lending rates for credit and cash-card loans, which have come under heavy fire in the past few days.

The TAIEX edged up 15.17 points, or 0.24 percent, to close at 6,264.36 yesterday.

Banks that earn a large proportion of their profits through credit cards, such as Chinatrust Financial Holding Co (中信金控) and Taishin Financial Holding Co (台新金控), saw their share prices reverse the negative momentum of the last few days. Chinatrust Financial added 2.39 percent to NT$25.70, while Taishin Financial jumped 2.92 percent to NT$17.65.

The legislature was supposed to review an amendment to the Banking Law (銀行法) yesterday to cap the interest rate on credit and cash-card loans and savings at 10 percent, compared with the existing average of 16 percent to 17 percent. The amendment is aimed at relieving indebted borrowers from growing financial burdens.

However, in the wake of days of criticism and strong opposition to the amendment, the Democratic Progressive Party (DPP) withdrew its endorsement of the proposal on Thursday night, forcing the bill to be dropped from yesterday's legislative session.

The Chinese Nationalist Party (KMT), which had proposed the amendment, convened a provisional meeting with the Financial Supervisory Commission and the Banks Association of the Republic of China (銀行公會) yesterday afternoon, demanding that banks come up with a more sophisticated self-discipline plan within one week.

The legislature is scheduled to hold another public hearing on the proposal next Thursday to seek consensus among the financial regulator, consumers and banks. The bill will be put on hold until then, the KMT caucus said.

The proposed credit-rate cap has been badly received by banks and investors. Fitch Ratings warned that Taiwan may face financial instability and ultimately a downgrade in its sovereignty rating if the proposal were to be implemented, while BNP Paribas Securities (Taiwan) Co said that narrow-minded politicians posed a major risk to the nation's financial sector.

"It will be a disaster if the proposal is passed," Jason Tuan (段樹仁), senior vice president of wealth management at Taiwan Securities Co (台証證券), said yesterday.

The market is already adjusting as an increasing number of banks gradually quit the risky unsecured-loan business, and introducing artificial measures while banks are being forced to tighten lending would create a credit crisis, Tuan said.

It would be ridiculous for the nation to create a credit crisis because of incorrect policy management, he said.

Fitch Ratings praised lawmakers' decision to reconsider the proposed cap, saying the move would help maintain stability in the banking sector. Enhanced supervisory measures by the national banking regulator would be a better way of reducing risk in the banking system, the ratings agency said in a statement yesterday.

A tiered pricing mechanism determined by lenders' credit worthiness would be more in line with the concept of risk-based returns, in addition to being more market friendly, Fitch Ratings said.

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