As the Financial Supervisory Commission's negligence and waffling has contributed to the problem of snowballing consumer debt, the authority must formulate a clear policy in order to contain the spiraling problem before it harms the nation's credit system, experts say.
"The financial authority must make the rules of the game and its bottom line clear and firm in order to discourage indebted borrowers from expecting that more preferential terms will be available in the future," said Charles Yeh (
Resolution
PHOTO: CHANG CHIA-MING, TAIPEI TIMES
Only a timely and sturdy resolution will help rein in the problem, which could ultimately damage the credit system and in turn increase risk in the finance industry, Yeh said.
The commission estimates that there are about 500,000 credit and cash card abusers, with each bearing more than NT$500,000 (US$15,400) of debt, translating into NT$260 billion of bad loans in the sector.
About 21,000 debtors have resorted to using the commission's debt negotiation mechanism and of those, about 1,000 have signed repayment contracts with their banks. The remaining debtors, however, seem to be taking a wait-and-see attitude.
The commission launched a campaign last week urging indebted cardholders to enter the bail-out program by April 10, or face debt collection pressure from their banks. Even so, there are concerns that some of the financial watchdog's recent decisions may further stir debtors' hopes that it will offer more leeway in meeting payment obligations in the future.
The negotiation system was originally restricted to bad debt accumulated before Dec. 15 last year, but it has since been expanded to include debt incurred after that date.
In addition, those not in arrears but who are finding it difficult to repay can also use the program to negotiate tailored repayment schemes with reduced or even zero interest rates, or longer payback terms of up to 10 years, according to the commission.
Debtors who fail to sign a new repayment agreement within 14 days after beginning negotiations can start talks again, the commission said.
This, however, is inconsistent with the regulator's previous announcements.
Yang Ya-hwei (
"Also, we do not agree with loose legislation or amendments to the bankruptcy law," because although swiftly passed laws may provide an easy solution in the short term, they often have long-term side effects, Yang said.
As many card abusers appear to expect that planned legislation on personal debt will help exempt them from paying back part of their loans, banking analysts are worried that this could prolong the bad-loan problem.
Potentially, the delinquent amount could jump by 50 percent to NT$300 billion or even NT$360 billion from former estimates of NT$200 billion to NT$240 billion, Sophia Cheng (
Bankruptcy law
The drafting of a personal bankruptcy law will drag out the process of clearing problem debts from the system; the consensus view that provisions will peak in the second quarter is now in question, Credit Suisse (Hong Kong) Ltd's analyst Sherry Lin (
Mounting bad loans on credit and cash cards began to set off alarms around the middle of last year. The problem is seen as a consequence of local banks' aggressive promotion of high-yield, unsecured consumer lending in the nation's competitive banking market over the past few years.
"The financial regulator was negligent in demanding that banks strengthen their risk management while the business [in that segment] prospered, and was inattentive to the potential risks -- even after the consumer credit crises that hit South Korea and Hong Kong a few years ago," Yang said.
Yeh said the commission from the outset should have set up a preventative system to check individuals' borrowing records and detect those who expand their credit and borrow to repay.
In 2002, Hong Kong encountered deteriorating asset quality in credit card lending, with the bad debt ratio peaking at 15 percent. South Korea's consumer credit bubble burst in 2003, with the bad-debt ratio shooting up to 25 percent, weakening the country's economy and shaking the finance sector.
In comparison, Taiwan reported a defaulted loan ratio of around 2.75 percent of NT$800 billion worth of credit and cash card lending as of January, according to the commission's statistics.
There is little likelihood of Taiwan experiencing a crisis similar to those of its neighbors, as consumer lending makes up a minimal 4 percent of the nation's total lending balance, said Susan Chu (朱素徵), director of financial services ratings at Taiwan Ratings Corp (中華信評), a local arm of Standard and Poor's Ratings Services.
But with intensive coverage of suicides by card abusers, the credit and cash card bad-debt issue has become more of a social problem than a financial knot, she said.
Political concerns have won out over professional solutions, Chu said, citing lawmakers' proposal to cap interest rates on card loans at 12 percent or even 10 percent, a move criticized as interfering in the market mechanism.
These proposals will be reviewed at the Legislative Yuan today.
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