Cardholders who have decent credit records will be able to enjoy lower lending rates in the future, as banks are required to offer graded pricing starting from next month, as part of the financial regulator's plan to restructure the debt-ridden credit and cash-card sector.
Meiji Chen (陳明智), head of the card business division at Union Bank of Taiwan (聯邦銀行), told the Taipei Times in a telephone interview yesterday that, "We are in the process of establishing our own credit scoring system ? we should be able to complete the work by the end of June and start providing our cardholders with interest rates that vary on their credit risks."
The procedure offers banks a chance to review their customer structure and quality in order to filter out and closely monitor risky cardholders in the early stages, Chen said.
Union Bank is the nation's fourth-largest credit card issuer with 2.91 million cards in circulation as of January. The bank's bad-debt ratio jumped to 4.45 percent in January from 2.95 percent a month earlier amid the nation's snowballing credit and cash card crisis, according to figures by the Banking Bureau.
Factors in deciding each individual cardholder's credit score include the duration of his/her cardholding, repayment history and general borrowing or default records with other lenders, Chen said.
Union Bank would divide interest rates into 10 grades likely to range from 3 percent to nearly 20 percent, according to the industry veteran.
The Financial Supervisory Commission said on Thursday that credit and cash-card issuers that already have a credit scoring mechanism in place are required to begin tiered pricing from April 1.
Those who are in the process of setting up the system will need to offer graded interest rates no later than July 1, the commission said.
Card issuers are obligated to disclose tiered rates for consumer reference and cannot refuse inquiries from cardholders about their credit ratings and applicable rates in the future, the financial regulator added.
The differentiated pricing only applies to credit and cash card lending for the moment. Banks can extend the application process to unsecured or secured loans, the commission said.
The financial watchdog's decision was made in light of public concern over the handsome profits earned from credit-card lending rates, some of which were as high as 20 percent, in comparison with the minimal rates of around 2 percent to 3 percent given to savings customers.
Similarly, Shinkong Bank (新光銀行), which dropped into the red over the last two months because of mounting card-related bad debt, is expected to roll out its own graded interest rate charges in May, bank president Lee Tseng-chang (李增昌) said.
The bank spent more than US$500,000 in hiring the US' Boston Consulting Group to help set up their own credit scoring system and early warning function, Lee said.
Shinkong Bank issued 1.4 million cards which incurred cumulative net losses of NT$460 million (US$14.08 million) for the first two months of this year, the bank said last week.
Meanwhile, the semi-official Joint Credit Information Center (聯合徵信中心) will start next month by giving consumers an aggregate personal credit score that ranges from 300 points to 800 points. Higher scores represent better credit.
Consumers can spend NT$100 on obtaining their own credit rating and use the information to negotiate with banks for preferential interest rates when applying for all kinds of loans.