Fitch cuts Taiwan banks' outlook to negative

Fitch Ratings said it revised to negative from stable its outlook on Taiwan-based Chinatrust Commercial Bank, Chinatrust Financial Holdings Co., Taishin International Bank, Taishin Financial Holdings Co. and Far Eastern International Bank.

The outlook revision reflects Fitch's general concerns over Taiwan's banking system brought about by the banks' aggressive growth in unsecured consumer loans and the subsequent deterioration in the quality of such loans. the agency said.

The annualized charge-off rates on credit card and cash card loans soared to 14% and 17%, respectively, in January from a level of around 6% in recent years. Fitch attributed the initial rise in the delinquency rates in the third quarter of 2005 to the banks' overly aggressive approach in growing these high-risk portfolios and inadequacies in their credit scoring models.

Fitch said a subsequent worsening of credit quality was triggered by the government's "misguided" response: since December, the government has responded to popular pressure to assist heavily indebted borrowers and penalize lenders. Measures proposed but not yet implemented include caps on interest rates at well below-market levels and a new bankruptcy law focusing mainly on individuals. Measures already implemented include pressure on banks to restructure the loans of heavily indebted borrowers at low interest rates.

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