The nation's soaring household debt levels from fast credit expansion in previous years are expected to ease off this year, in the wake of recovering household income and the stabilizing of the unsecured bad loans problem, MasterCard Worldwide reported yesterday.
"The worst is over," Yuwa Hedrick-Wong (王月魂), chief economist at MasterCard Asia-Pacific, said in a report released yesterday on Taiwan's household credit.
Household credit figures are set to recover this year, Wong said.
The nation's average household debts were as much as 95.5 percent of personal disposable income in 2004, from 83 percent a year earlier and 75.1 percent in 2000, said MasterCard, citing IMF estimates.
"The level and pace of growth is relatively high compared with emerging market peers," said Tina Chiang (江威娜), president of MasterCard Taiwan.
In comparison, the average household debt ratio in South Korea, which also suffered from consumer credit abuse a few years ago, was 64.5 percent in 2004, up from 62.6 percent one year earlier and 33 percent in 2000, the data showed.
The turnaround in household credit figures has been bolstered by improving personal disposable income since the middle of last year, a strengthening economy supported by more competitive exports as the currency weakens and a potential rebound in the job market as the nation's unemployment rate has fallen to its lowest level in six years, Wong said.
A full recovery of confidence would not occur until the middle of next year, when any political risk subsides in the wake of the presidential election, he said.
A more permanent solution to prevent consumer credit abuse lies in structural reform and consolidation in the overcrowded banking sector where competing, identical products have fueled a boom in easy credit, the economist said.
The personal bankruptcy bill (破產法), which favors debtors, is another looming risk facing the banking sector, and MasterCard said it would keep a watch on future developments. The bill, which passed its first reading in the legislature earlier this month, allows debtors to be exempted from partial debts and mortgage payers to pay only the interest on their loans for eight to 10 years without risking having their property repossessed by creditor banks.
The financial regulator has expressed concern about the bill and hopes to amend the draft law through partisan negotiations with legislators.
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