Interest ceiling would cut economic growth: study

This article was published by the Taiwan Headlines on March 13, 2006. It reports that according to a recent study conducted by the Bankers Association in Taiwan, if the government set the interest ceiling for credit and cash cards and small-amount credit loans at 12 percent, the impact will bring down the nation's economic growth rate by more than one percent.

Taiwan currently has 4.3 million credit- and cash-card and small-amount credit loaners. The study showed that if the interest ceiling is set at 12 percent, then the eight largest card-issuing banks in Taiwan will suspend the cards that have been issued to 1 million clients. If small-amount credit loaners are included, then the number of people who will be affected will increase to 1.5 million. One third of these will immediately become insolvent because they are unable to repay their existing loans. This means that 500,000 new insolvent debtors will emerge, who will be forced to resort to private moneylenders.

In recent months, the problem of insolvent card debtors has sparked growing concern in Taiwan. A draft revision to the Civic Code proposes to put interest ceiling at 12 percent. If the revision is approved by the Legislative Yuan, then it will affect not only the interests for credit and cash cards, but also that for small-amount credit loans, individual housing loans, and enterprise loans.

However, the Bankers Association carried out the aforementioned study under the request of the Financial Supervisory Commission, and found that if 1.5 million people in Taiwan are deprived of their cards, then private consumption will plunge and banks will tighten consumer credit. This will lead to a cut in year 2006's economic growth rate by one percent.

Worse, according to the study, the decline in economic growth will affect the job market in Taiwan by reducing 40,000 to 50,000 job opportunities. The overall banking system will also lay off 4,000 to 5,000 employees at the sections for unsecured credit lending.