Sat, Feb 04, 2006 - Page 10 News List

Black hole of bad debt set to expand, experts warn

CREDIT SLAVERY The problems plaguing the banking sector won't disappear very soon, and amending the Bankruptcy Law could make matters worse, analysts said

By Amber Chung  /  STAFF REPORTER

The Year of the Dog is not likely to be any easier for the nation's already glum banking sector, as the snowballing problem of bad consumer loans will continue to plague the industry, market watchers said.

"The mounting number of bad consumer loans will remain a major theme and pose a downside risk to the banking sector this year," said Jesse Wang (王嘉樞), head of research at BNP Paribas Securities (Taiwan) Co.

The black hole of bad debts is expected to expand if the legislature passes the drafted amendments to the Bankruptcy Law (破產法) aimed at helping heavily indebted individual borrowers, Wang said.

Having already written off up to NT$70 billion (US$2.22 billion) in bad debts, local banks still have to deal with another NT$20 billion worth of non-performing loans generated by credit and cash-card businesses. This is equivalent to 2.5 percent of the nation's total credit and cash-card lending balance, which amounted to some NT$800 billion as of December last year, according to the Financial Supervisory Commission's (FSC) Banking Bureau.

The issue has also become a social problem, as a number of insolvent debtors have committed suicide after being hounded by debt-collecting companies, which are notorious for using illegal or even violent measures to scare borrowers into paying their debts.

Since the public is eagerly anticipating a quick solution to the debt problem, Wang expects the Bankruptcy Law amendments to be approved in the next legislative session, but he warned that it may take another three months after the passage of the amendments before the impact on bad loans becomes apparent.

If this is the case, the problem with bad loans would not ease off until after the third quarter of this year at the earliest, Wang said.

The Judicial Yuan designed the draft amendments to offer individual borrowers facing insolvency easier payback solutions, in the hope of systematically eradicating the credit problem and relieving borrowers' burden.

The amendments would allow courts to grant insolvent individuals with debts amounting to between NT$2 million and NT$20 million graded exemption from their full credit obligations. People who have been declared bankrupt would be allowed to pay off their remaining outstanding debt in installments over a maximum term of five years.

"We do not want an overly loose bankruptcy mechanism," Financial Supervisory Commission spokesman Lin Chung-cheng (林忠正) said, citing concern over ethical risks if borrowers are allowed to dodge their obligations too easily.

The commission expects to back up debt-relief efforts with thorough supporting measures, such as stricter criteria limiting bankruptcy filings, Lin said.

Currently, debtors can negotiate with banks under a bail-out program implemented by the Bankers Association (銀行公會), which provides reduced interest rates at a minimum of 3.88 percent, compared with the 20 percent revolving rate levied on credit or cash cards, and longer payback terms of up to 80 months.

The consumer debt problem began to flash alarm signals around the middle of last year, triggering a snowball effect on lenders and forcing them to tighten up credit to borrowers amid concerns of a systematic crisis in the consumer banking sector. Nonetheless, Banking Bureau director-general Gary Tseng (曾國烈) appears optimistic about the issue.

This story has been viewed 3684 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top