Mon, Oct 30, 2006 - Page 12 News List

Consumer debt problems likely to ease next year

GRADUALLY IMPROVING The overall bad loan ratio for the nation's 47 domestic banks averaged 2.4 percent last month compared with 2.41 percent in August

By Amber Chung and Jackie Lin  /  STAFF REPORTERS

As most domestic lenders have written off the bulk of their bad consumer debt this year, the negative flow-on effects to the banking industry of the bad-debt problem are expected to ease in the second half of next year, banking executives said last week.

Their prognosis came as the latest statistics indicated declining loan default ratios for both the credit-card and cash-card businesses.

The bad-loan ratio for credit cards slid to 2.47 percent last month, down 0.32 percentage points from August, while the bad-loan ratio for cash cards also dropped 1.39 percent to 7.07 percent last month over August, the Financial Supervisory Commission said last week.

The number of credit cards in circulation declined 1.13 percent month-on-month to 39.47 million cards last month, while the number of cash cards decreased by 4.8 percent to 2.38 million cards, the commission said.

"The bad consumer debt issue is nearing its end and we expect the bank's unsecured consumer lending business to become profitable in the first quarter of next year," Charles Lo (羅聯福), chairman of Chinatrust Commercial Bank (中國信託商銀), said on Wednesday.

Chinatrust Commercial, the nation's largest credit-card issuer, has allotted an estimated NT$36.7 billion (US$1.1 billion) in bad-loan provisions to cover losses this year, Lo said.

An official at the Bankers Association (銀行公會) said the negative impact of the bad consumer loans will gradually ease from next July, as domestic lenders write off the rest of non-performing loans in the first half of next year.

"The credit-card and cash-card business is expected to return to normal profitability in the second half of next year," said Vincent Wang (王修本), an official in charge of the association's credit-card division, after a monthly board meeting on Thursday.

Wang is also an executive vice president of the consumer banking group at Cathay United Bank (國泰世華銀行). The bank wrote off NT$12.6 billion in bad debt in the first nine months of this year.

In a briefing with investors on Friday, Shin Kong Financial Holding Co (新光金控) spokesman Victor Hsu (許澎) said he expected the consumer credit crisis to bottom out in the second quarter of next year at the earliest.

Shin Kong estimates a provision expense of around NT$6 billion will be needed to cover losses from bad consumer debt this year, he said.

As banks are gradually cleaning up their asset sheets, the overall bad-loan ratio for the nation's 43 domestic banks averaged 2.4 percent last month compared with August's 2.41 percent.

Meanwhile, the coverage ratio, which gauges the sufficiency of institutional reserves covering bad debt, rose to 48.64 percent last month, up 1.53 percentage points from the previous month, according to the commission.

Among the 47 banks, 18 saw their coverage ratio below the regulatory 40 percent, with Chinfon Bank (慶豐銀行) reporting the lowest at 17.88 percent.

"This means that those banks are in a fragile financial condition," Gary Tseng (曾國烈), director general of the commission's Banking Bureau, said last week.

The regulator would keep a close eye on these problematic lenders, he added.

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