April 28, 2009

Taiwan’s already thin banking industry profits will be dealt a severe blow if the government passes a law lowering the maximum interest rate banks can charge on unsecured consumer loans, bankers and analysts warn.“This is not something that will help consumers, the economy or the banking industry,” Charles Lo, chairman of Chinatrust Financial, one of the biggest financial groups in Taiwan, told the Financial Times.Such a cap could wipe out up to a quarter of the Taiwan banking industry’s profits this year, Lily Choi, an analyst at Morgan Stanley, said in a recent report.

Unsecured consumer lending makes up less than 10 per cent of bank loans in Taiwan, but such loans are important for banks’ profitability because they are more lucrative than corporate loans or mortgages.Taiwan already has a 20 per cent legal limit on credit rates.Legislators have two weeks reach an agreement on amending that ceiling. A government proposal to tighten the cap failed earlier this month because opposition legislators wanted even more stringent limits.The government proposal would have changed the 20 per cent ceiling to a floating maximum rate of 9 per cent above the central bank rate for credit and cash cards, and 12 per cent above the central bank rate for other personal loans.