Mon, Oct 31, 2005 page10

• Cash-card issuers now being cautious with new accounts

  TOO MUCH? With market saturation and rising debt among customers, the nation's banks are reining in their cash and credit card operations

  • By Jackie Lin / STAFF REPORTER
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  Local lenders, facing market saturation and bad press over the rise in consumer debt, have unanimously slowed the pace of development in the high-risk cash-advance card business, with several financial institutions deciding to halt or reduce their operations in order to facilitate better risk management.

  Cathay United Bank (國泰世華銀行) has temporarily suspended issuing new cards.

  While E.Sun Bank (玉山銀行) disclosed in a recent investors conference that it has ceased accepting new card applications for several months.

  Cosmos Bank Taiwan (萬泰銀行), the nation's second biggest cash card issuer, and Chinatrust Commercial Bank (中國信託), the No. 3 issuer and largest credit card issuer by lending amount, have adopted more rigid verification systems for card applicants since last year, after concerns that consumer payment capabilities were becoming weaker.

  Even Taishin International Bank (台新銀行), the nation's largest cash-card issuer, with 27.7-percent market share by lending amount, has taken a more cautious approach in issuing new credit and cash cards with no commercials or advertisements planned by the end of the year.

  "Taiwan's cash-card market has reached saturation point. We're taking a more conservative approach and are closely monitoring cardholders' payment records before increasing credit limits," said Sarita Hao (郝名媛), Taishin's public relations official.

  Their concerns are not groundless. Statistics released by the Financial Supervisory Commission's Banking Bureau show that Taiwan's average non-performing loan (NPL) ratio in the cash-card market has shot up to 2.11 percent last month from 0.8 percent in January. Given that total lending has reached NT$315.2 billion (US$9.38 billion) among the 33 issuers, bad loans have now surpassed NT$6.6 billion.

  The seemingly lucrative market saw one player drop out of the race altogether in April, when Taipei-based Bank of Overseas Chinese (華僑銀行) decided to dispose of its cash-card customers.

  Morgan Stanley issued warnings in its recent market report, saying that "deteriorating consumer credit in cash card and credit card loans could drive earnings downside risk to related banks next year."

  The report added that it had removed Chinatrust Financial Holding Co (中信金控) from its portfolio, but kept Cathay Financial Holding Co (國泰金控), Fubon Financial Holding Co (富邦金控) and First Financial Holding Co (第一金控), the three of which were given an "overweight" rating.

  Joseph Wang (汪彥銘), associate manager of the investment and research department with First Taisec Securities (一銀證券), said it is "normal" for the banking institutions to decelerate as they have seen an escalating charge-off ratio for cash cards, which could erode profits if they fail to apply the brakes.

  “With the South Korean experience serving as a lesson, they've been more

  vigilant. The chances that Taiwan will see a massive credit crunch are

  actually quite slim,” he said.

  Gary Tseng (曾國烈), director general of the Banking Bureau, reassured the

  public last week that Taiwan's retail banking sector is in good shape and

  possibility of bad loan problems from credit and cash cards damaging the

  financial system is unlikely given the two nations' different economic

  fundamentals.

  In addition, Goldman Sachs wrote in its latest economic research report that

  Taiwan has a well-structured credit information infrastructure and its level

  of unsecured consumer debt is lower than that of South Korea when its crisis

  broke in 2002.

  However, Goldman Sachs cautioned that the rising consumer debt burden would

  weigh on consumption.

  “Although we think the deterioration in consumer credit is not approaching

  the same scale as [South] Korea in 2002, the rising debt burden for

  consumers is still sufficient to pose further downside risk to our already

  cautious view on domestic demand going forward,” the US brokerage firm

  said.
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