The finance sector responded positively yesterday after the Cabinet decided late on Tuesday to open negotiations with lawmakers in the hope of blocking a proposal to cap interest rates for credit and cash card loans, in the wake of sweeping criticism of the plan.
Financial sector shares rose 0.8 percent on the Taiwan Stock Exchange yesterday on anticipation of talks between the government's administrative and legislative branches. Legislators had put forward the plan to put a ceiling on interest rates.
"We very much welcome the Cabinet's decision," said an executive of Cathay United Bank (國泰世華銀行), who asked to remain anonymous.
Cathay United is the nation's third largest credit-card issuer with 3.73 million cards in circulation as of January.
Some lawmakers have proposed to cap credit and cash card interest rates at 10 percent or 12 percent to ease the burden on the rising numbers of people with large overdue credit or cash card loans.
But analysts have panned the measure, saying it could reduce banks' interest revenue by up to NT$75 billion (US$2.3 billion) a year.
The Cathay official concurred.
It would put significant pressure on profitability, in light of high costs in the unsecured lending business, including funding costs of 2 percent and operating expenses of 6 percent, plus the cost of covering risk, which varies depending on individual customers' credit, the executive said.
To resolve this, the Executive Yuan held a meeting late on Tuesday and concluded that rising bad loans in the consumer sector were not a threat to the financial system.
A cap on interest rates would instead lead to a credit crunch and damage economic growth, the Cabinet said in a statement released late on Tuesday.
To avoid interference in the market, the Cabinet urged banks to adopt graded rates depending on their clients' credit conditions, the statement read. Card issuers will be required to implement the graded measure by July 1 at the latest, it added.
"[Revolving and lending] rates should be able to reflect capital costs, risk and banks' operating costs. We respect market forces," Minister of Finance Joseph Lyu (呂桔誠) told lawmakers yesterday at the legislature's Finance Committee.
Last week, the Bank of Taiwan (
Cathay United yesterday said it was evaluating its credit grading system and cardholders who had a decent credit record could enjoy a preferential lending rate as low as 5 percent in the future.
But lawmakers criticized the government, saying it was helping big businesses make money and abandoning card debtors.
"As the savings interest rate of the Central Bank is only 2.1 percent, the 20 percent lending rate for credit cards and cash cards is really too high," Chinese Nationalist Party (KMT) legislative whip Tsai Chin-lung (
Taiwan Solidarity Union (TSU) legislative whip David Huang (