Mon, Mar 23, 2009 - Page 12 News List

Vice premier fears chilling effect of a cap on credit rates

STAFF WRITER

In response to a legislative proposal to impose a cap on the revolving interest rate on credit and cash cards at 12.5 percent, Vice Premier Paul Chiu (邱正雄) said on Saturday that such a move seemed drastic and would put undue stress on banks’ risk exposure.

A Cabinet meeting will be held today to discuss the matter, the Chinese-language Economic Daily News reported yesterday, citing Chiu.

The news followed a similar report by the Chinese-language Commercial Times on Saturday, which said the Financial Supervisory Commission was mulling an alternative plan to cap the revolving rate in an apparent move to challenge legislative action last week.

BILL

On Thursday, legislators passed the first reading of a bill that aims to impose a cap on the interest rates on revolving credit at 12.5 percent — 9 percentage points over the central bank’s short-term unsecured loans rate — from the current ceiling of 20 percent.

The central bank’s short-term unsecured loans rate is at 3.5 percent.

The Cabinet, however, seemed to favor financial institutions establishing their revolving rates by adding an extra premium of between 12 and 15 percentage points on top of the central bank’s unsecured loans rate.

This would translate into a rate of between 15.5 percent and 18.5 percent, the Economic Daily News said, citing sources close to the situation.

PLANS

Meanwhile, the Bankers Association of the ROC (銀行公會) was reportedly working on its own plan to set the ceiling rates of revolving loans, the two newspapers said, without citing sources.

The reports said that the association preferred a variable interest rate policy that would follow the adjustable rate mortgage index and allow financial institutions to float their rates on a quarterly basis in tandem with the central bank’s policy rate moves.

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