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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