Chinatrust Commercial Bank’s (中國信託商銀) plan to cut various consumer banking fees from May 1 is likely to pose “negative credit implications” for Taiwan’s banking sector, as other local lenders may follow suit amid fierce competition, Moody’s Investors Service said yesterday.
Chinatrust is the nation’s largest credit card issuer, with an 18 percent market share in terms of the number of effective cards as of the end of February. It announced on April 1 that it would cut replacement fees for lost credit cards to NT$100 from NT$1,000 and eliminate the replacement fees for lost cash cards, from NT$100 previously.
The bank also said it would drop sales draft retrieval fees for credit cards to NT$50 from NT$100, as well as lower the maximum late fee charges for credit card loans and other personal loans to NT$2,000, down from NT$4,000.
Chinatrust is the second-largest player in the unsecured consumer loan business in Taiwan, with a 9 percent market share.
“As market leader, Chinatrust’s price strategy is closely watched by all banks. Since competition is very tough and many banks also want to expand their higher-margin consumer banking businesses, we believe they will follow Chinatrust’s lead or come up with a similar promotion scheme to retain customers,” Moody’s vice president Christine Kuo (郭書岑) said in the ratings agency’s weekly credit outlook report released yesterday.
Kuo named Cathay United Bank (國泰世華銀行), Taishin International Bank (台新銀行), Taipei Fubon Bank (台北富邦銀行) and E.Sun Commercial Bank (玉山銀行) as possible candidates to follow suit soon.
She said Chinatrust might see its customer satisfaction and market share increase in the short term, but in the long run the expected price competition for consumer banking fees within the industry would further erode all players’ “already-thin margins.”
“Except for a few wholesale banks not engaged in retail banking, we think all banks will lose out; once reduced fees become the industry norm, it will be difficult to raise them again,” Kuo said in the report.
“Chinatrust itself is likely to be among the most adversely affected” in the longer term, followed by Taishin bank, she added.
Taiwanese banks saw business recover gradually in the second half of last year amid a rebounding economy.
However, they are still faced with challenges in making substantial improvements in profitability because of the shrinking net interest margin (NIM) following the central bank’s series of interest rate cuts over the last two years.
NIM, which measures lending profitability, is the percentage difference between the income a bank earns from interests on loans and investments and its major expenses such as interest paid to depositors.
As local banks are already suffering with the narrower NIM in Asia compared with their regional rivals, Kuo said banks’ plans to cut further on fee incomes would only drag their mediocre earnings even lower.
Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor’s Rating Services, said yesterday Taiwanese banks are unlikely to improve their narrower net interest margins significantly with regard to the current low interest rates.
“Income generation from non-traditional sources such as fee income remains low, while fierce domestic competition will keep the sector’s average net interest margin, its main income source, at a marginal level for several years to come,” credit analyst Chris Lee (李明泰) said in a separate report yesterday.
“Moreover, Taiwan’s banking system faces a potential increase in credit costs, given that the volume of non-performing assets typically rises at a later stage in the economic downturn cycle,” Lee said.
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