In a report on consumer lending in Asia, Fitch Ratings cited the experience of South Korea and Taiwan, and before them Hong Kong and Singapore, as a concern because of the implications for the rest of Asia.

India, Thailand, Indonesia, China, for example, where banks are aggressively targeting consumer lending despite their risk management infrastructure being less well developed.

On the positive side, Fitch noted that many new loans were secured residential mortgages, but it also pointed out that those were not as safe as is generally thought.

The housing loan default rate for Thai banks peaked at more than 30 per cent after the financial crisis of the late-1990s, but at the end of 2005 the delinquency ratio was still 12 per cent; in Malaysia it was 9 per cent.

Moreover, loans only provides value to a bank if laws governing foreclosure and disposal of collateral are effective, which in some countries - India, China and Indonesia for example - is not always the case.

Japanese banks belong to the latter group. They have focused on a lower risk mortgage-lending policy while unsecured consumer lending is undertaken by their affiliates or guaranteed by finance companies that have a longer track record in the business.

Because this phenomenon is unique to Asian countries, Fitch Ratings expressed concern that Asian banks' enthusiasm for consumer lending may be leading to growth rates that outpace improvements in risk management.

Fitch said that the re-balancing of loan portfolios from corporate to consumer lending that is occurring around the region was inevitable.

Rising income levels make more people eligible for bank loans - while companies are turning to the capital markets as bank assets and revenues become more diversified.

However, like South Korea and Taiwan, Fitch noted that even in Hong Kong and Singapore credit charge-offs hit high levels before the establishment of consumer credit information bureaus.

Among the lessons Fitch noted from South Korea's credit card debacle is that aggressive growth in unsecured lending is highly risky in an environment where risk management tools, notably scoring systems, are underdeveloped, and credit bureaus provide only negative data, i.e. covering those who have already defaulted.

Since so many people in South Korea, as in the rest of emerging Asia, had no history of personal borrowing at the time, the credit bureaus had no record of inexperienced borrowers who had not defaulted but were accumulating debts at dangerous levels.

"It was only when the borrowers defaulted - often after taking out more credit cards and loans in an attempt to make payments - that lenders learnt that borrowers had, for example, 10 credit cards and debts of 40 times their monthly income," Fitch said in the report.

Taiwan has also seen rapid growth in lending on cash and credit cards over the past five years.

However, a major bad-debt crisis seemed unlikely since Taiwanese lenders have access to the Joint Credit Information Centre (JCIC) - the most comprehensive credit bureau in Asia, with extensive data on peoples' debt levels and financial profiles.

Despite this, the quality of unsecured consumer lending declined sharply last year and the charge-off rate on credit and cash cards doubled from a 6 per cent annual rate to between 12 per cent and 15 per cent by the end of 2005.

Fitch is concerned that the moves by Taiwan's legislature to enforce debt-restructuring schemes for card-loan debtors might overextend retail borrowers and add a new uncertainty to Taiwanese banks' consumer-lending portfolios.

Many banks have tightened their credit line management that has effectively reduced outstanding card loans in the past few months. Fitch said it would closely monitor the retail credit market development to assess the possible rating impact on Taiwanese banks.

Several banks have exited the cash-card lending business.

Taishin Bank will book a loss for 2005 in an attempt to put behind it the cost of its aggressive push into cash cards many customers for which are in the sector previously considered ineligible for bank credit.

With unsecured consumer lending, including credit card-related, is also growing strongly around the region.

Fitch has questioned whether the risk management infrastructure is adequate to manage the risks effectively. It has urged the introduction of more robust credit-approval systems, regulators and the development of key institutions, especially effective consumer credit-information bureaus.

Fitch said Asian regulators should consider whether the risk weights for consumer lending under Basel II (a 2.8-per-cent capital charge for risk on mortgage lending and 6 per cent on credit cards and other unsecured lending) are as appropriate for emerging Asia as for developed countries.