The likely passage of the personal bankruptcy bill later this year could deal a blow to the ailing banking sector, causing a resurgence of credit abuse that could spill over into the mortgage market, an analyst warned.
"Overprotection of debtors could lead to huge losses in the banking sector," Chu Yu-chun (朱玉君), an analyst who tracks the financial industry at SinoPac Securities Corp (永豐金證券), said in a report released last week.
Chu said that the legislature would likely pass the disputed bill to curry favor with voters as the year-end elections approach.
Chu criticized the bill's slack provisions, including allowing debtors in rehabilitation to pay interest on mortgage for up to 10 years without bearing the risk of having their residence put up for auction by creditor banks.
This could contribute to a further rise in problem loans, as participants in debt restructuring programs could take advantage of loose provisions in the new system to seek exemption from obligations, Chu said.
Problem lending amounted to some NT$500 billion, comprising NT$330 billion of restructured loans and NT$162.7 billion of charge-offs at the end of last year.
Consumers may also face higher interest rates and a credit crunch when banks seek to contain potential losses stemming from a rising bad loan risk, Chu said.
The bill could also deal a blow to the robust real estate market by extending the risk to the secured mortgage segment, as defaulters in rehabilitation would be entitled to make interest payments only within the long grace period, she said.
Past experiences in corporate and personal restructured debts showed that
the preferential delayed repayment would eventually become non-performing
loans, the analyst argued.
Potential loss stemming from housing mortgage lending, which makes up nearly
30 percent of NT$5.37 trillion of deposit balance, could be far bigger than
the soured consumer loans in the past two years with a profoundly negative
impact that can last for the next 10 years, Chu said.
RSS