Taiwanese banks face profit wipeout on restrictions

How does a cut in your interest rate from 20 percent to 9 percent sound? Not great if you are a Taiwanese bank, which may see the government cap interest rates for unsecured credit and wipeout a quarter of their profits this year.

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, as reported in theFinancial Times.

"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 percent of bank loans in Taiwan, but such loans are important for banks' profitability because they are more lucrative than corporate loans or mortgages.