Taiwan's card issuers plagued by worsening card debt

This article was published by the Taiwan Headlines on April 14, 2006. It reports that Taiwan's problem of card debt is getting worse and has become a serious concern for the nation's issuers of cash and credit cards.

Statistics show that in 2005, Taiwan's top 50 card issuers recorded total revenues of NT$104.7 billion (US$3.08 billion) on their credit card operations. However, about NT$48.3 billion (US$1.42 billion) of that amount was used to write off credit card delinquencies, while another NT$17 billion (US$500 million) was appropriated as provision against bed debt. In other words, about 60 percent of the revenues earned by the issuers was used to clear up card debt, leaving only 40 percent to cover operating costs.

In 2005, after writing of bad card debt and deducting operating costs, only 9 of the top 50 card issuers realized card revenues of more than NT$2 billion (US$58.82 million). Among the remaining 41 issuers, only 5 or 6 managed to post earnings on their card operations.

Revenues generated from card operations generally includes interest from revolving credit, transaction service charges, and management fees for cash loans offered to cardholders. Among Taiwan's top 50 card issuers, the Chinatrust Commercial Bank was ranked No.1, followed by Citibank, Taishin International Bank, Cathay United Bank and Taipei Fubon Commercial Bank.

Meanwhile, due to the problem of card debt, Taiwan's domestic banks also saw their total pre-tax profits plummet to NT$78.6 billion (US$2.31 billion) in 2005, down from NT$155.3 billion (US$4.57 billion) in 2004. Most of the banks had suffered a loss.

According to industry analysts, Taiwan's domestic banks are finding it increasingly difficult to do business in recent years, because of the uncertain economic climate and rising competition in the financial market. Statistics provided by the government's Financial Supervisory Commission show that the profits of domestic banks began to drop in 1998 and hit a record decline of 40 percent in 2001. In 2002, the total profits of Taiwan's domestic banks went into the red for the first time, with a loss of NT$104.5 billion (US$3.07 billion). In total, 24 of the nations' banks suffered a negative growth in that year.

In 2003, revenues in the domestic banking industry went into the black again, thanks to massive write-offs of bad debt and a consequent improvement in asset quality. In 2004, the banks scored a record overall profit of NT$155.3 billion (US$4.57 billion). In 2005, as mentioned before, revenues of the banks plummeted again.

In 2005, the funds appropriated by Taiwan's domestic banks as provisions against bad loans amounted to NT$243 billion (US$7.15 billion), a huge increase from the NT$78.1 billion (US$2.3 billion) allocated in 2004. About NT$30.1 billion (US$885.29 million) of the funds appropriated in 2005 went to cover bad cash- and credit-card loans.

It is expected that Taiwan's major cash- and credit-card issuers will see a drop of more than 30 percent in their outstanding cash- and credit-card loans in 2006. Industry analysts predict that the bad debt of cash- and credit-card holders may hit a peak in the second quarter of 2006. Card issuers and banks will feel the impact soon.