Consumer credit card lending in fast-growing Asian economies in recent years has been marked by sharp boom and bust cycles that can jeopardize financial stability, a report by the Bank for International Settlements (BIS) said yesterday.
The use of credit cards in many Asian markets increased three to sixfold between 1998 and 2005, while the average credit card balance per head grew by about the same amount, a study in the BIS' quarterly review said.
Banks took advantage of the growth in consumer markets to compete for high yield but riskier business among less wealthy cardholders, by reducing lending standards and making consumer credit more easily available, it said.
That helped fuel consumer spending but also produced a rapid build-up in household debt, with a "disproportionate concentration of debt burdens among riskier card holders," the report found.
Cardholders later started to default on repayments as their debt accumulated and they became overstretched, prompting the introduction of tighter lending standards that suddenly stifled the private credit market and affected the economy.
"The bottom line is that, as consumer finance becomes an important part of Asia's financial system, policymakers need to better understand the associated risk and be prepared to respond," the BIS report said. "Credit card lending represents new opportunities but increases risks to the financial system."
The BIS, known as the central bank of central bankers, highlighted three examples of boom and bust cycles, in Hong Kong in 2002, in South Korea in 2003 and in Taiwan last year.
The report estimated that one-third of all card lending books were simply written off after the lending booms swung to bust, in order to cushion the shock.
By comparison, credit card lending in Malaysia, Singapore and Thailand has so far shown a more steady pattern of growth, the report said.
Since the Asian financial crisis in 1997, local bank lending has been marked by a shift to consumer finance, with lending to households outpacing the increase in total bank loans to other markets, such as the corporate sector.
That was spurred by weak demand for corporate loans but also by government policies, including an easing of monetary policy to revive the economy and financial deregulation that expanded the number of lenders, the report said.
In the year before South Korea's credit card market was tightened, average per capita card balances reached US$2,006 and credit card lending accounted for 45 percent of household loans or 21.3 percent of all bank loans.
Crucially, household credit card debt equaled 14.7 percent of South Korea's GDP, according to the report.
MORE VISITORS: The Tourism Administration said that it is seeing positive prospects in its efforts to expand the tourism market in North America and Europe Taiwan has been ranked as the cheapest place in the world to travel to this year, based on a list recommended by NerdWallet. The San Francisco-based personal finance company said that Taiwan topped the list of 16 nations it chose for budget travelers because US tourists do not need visas and travelers can easily have a good meal for less than US$10. A bus ride in Taipei costs just under US$0.50, while subway rides start at US$0.60, the firm said, adding that public transportation in Taiwan is easy to navigate. The firm also called Taiwan a “food lover’s paradise,” citing inexpensive breakfast stalls
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
CROSS-STRAIT: The vast majority of Taiwanese support maintaining the ‘status quo,’ while concern is rising about Beijing’s influence operations More than eight out of 10 Taiwanese reject Beijing’s “one country, two systems” framework for cross-strait relations, according to a survey released by the Mainland Affairs Council (MAC) on Thursday. The MAC’s latest quarterly survey found that 84.4 percent of respondents opposed Beijing’s “one country, two systems” formula for handling cross-strait relations — a figure consistent with past polling. Over the past three years, opposition to the framework has remained high, ranging from a low of 83.6 percent in April 2023 to a peak of 89.6 percent in April last year. In the most recent poll, 82.5 percent also rejected China’s
PLUGGING HOLES: The amendments would bring the legislation in line with systems found in other countries such as Japan and the US, Legislator Chen Kuan-ting said Democratic Progressive Party (DPP) Legislator Chen Kuan-ting (陳冠廷) has proposed amending national security legislation amid a spate of espionage cases. Potential gaps in security vetting procedures for personnel with access to sensitive information prompted him to propose the amendments, which would introduce changes to Article 14 of the Classified National Security Information Protection Act (國家機密保護法), Chen said yesterday. The proposal, which aims to enhance interagency vetting procedures and reduce the risk of classified information leaks, would establish a comprehensive security clearance system in Taiwan, he said. The amendment would require character and loyalty checks for civil servants and intelligence personnel prior to
RSS