The nation's unprecedented consumer bad loan problem is expected to start easing off in the second half of the year following the speedy efforts of banks to tighten their lending policies and write off bad loans, Fitch Ratings Taiwan said yesterday.
The quality of Taiwan's unsecured consumer lending deteriorated sharply in the second half of last year due to excessive competition, with the charge-off ratio on credit and cash-advance cards doubling from a 6-percent annual rate to a 12 to 15 percent rate by the end of last year.
A charge-off ratio refers to the total amount of bad debt written off during a period as a percentage of the total credit or cash card receivables at the end of that period.
"Card debts peaked in the fourth and first quarters but now the problem has been kept under control," said Jonathan Lee (
The total revolving credit balance for credit cards decreased for the second straight month in January, falling by 0.26 percent to NT$493.4 billion (US$15.17 billion). At the same time, the cash-card lending balance slid for a fourth month, shrinking by 3.12 percent to NT$298.2 billion, according to the Financial Supervisory Commission's latest statistics.
"If there's no `moral hazard' occurring among retail borrowers when the government pushes forth debt restructuring schemes and plans amendments to the bankruptcy law, banks' profitability is expected to return to the normal level next year," he added.
Most banks will still see their profits compressed this year from the consumer loan fallout.
Although many have warned that Taiwan might repeat South Korea's credit card debacle, Lee expressed optimism, citing the small scale of card loans compared with overall lending. Currently, debts incurred from credit and cash cards account for less than 5 percent of the total lending of NT$17 trillion in the financial market.
Even if banks choose to write off the unsecured loans altogether, the overall delinquency ratio would merely top 7 percent by adding the general non-performing loan (NPL) ratio of 2.5 percent -- still much lower than the 12-percent default ratio Taiwan suffered in 2002, he noted.
"Taiwan's situation is, in substance, quite stable and there's little probability of a `storm' taking shape. But the financial regulator and banking operators should strengthen supervision and risk management capability to ensure a healthy environment," he said.
Although the government has presented a card-debt negotiation mechanism to help debtors, many have adopted a wait-and-see attitude, naively thinking that there might be more favorable bailout measures or that a new version of the bankruptcy law will serve as their panacea.
Lee warned that Taiwan must be well prepared to implement the draft consumer debt clean-up bill, which DPP Legislator Jerry Tsai (
Hong Kong amended its bankruptcy law in 1998 and had seen the number of bankruptcy filings surge from dozens to several thousands of cases a day, leaving the judicial authorities incapable of handling the situation.
Lee said that the government must determine whether its judicial system is staffed with a sufficient number of professionals, and map out ways to avoid moral hazard while upholding justice and equity.
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