Banks not the `government's vault'

After the Ministry of Finance (財政部) instructed 25 commercial banks to support troubled companies on Thursday, executives of several new commercial banks yesterday voiced strong opposition to the policy, saying commercial banks are not the "government's vault."

The finance ministry and the Central Bank of China (央行) on Thursday requested that executives of 25 state-controlled and private commercial banks stop issuing margin calls on troubled companies. In addition, the agencies asked the banks to supply enough funds to troubled companies in order to ensure stability in the stock market and the overall health of the financial system.

A few of the 25 banks -- which include Hua Nan Commercial Bank (華南商銀), Chang Hua Commercial Bank (彰化商銀), First Commercial Bank (第一商銀) and Bank of Taiwan (台灣銀行) -- said they would continue lending to solid companies and that bank loan policies would not be changed as a result of the Chung Shing Bank (中興銀行) loan scandal.

However, executives of several new commercial banks have expressed differing views on the policy.

One senior bank executive said the finance ministry's proposal was unreasonable.

"I hope that the Ministry of Finance and the Central Bank understand that commercial banks belong to shareholders and not the government," said the executive who, as was the case with other bank executives, refused to be named in this report for fear of a backlash from government officials.

"The loan problems that have occurred between certain specific banks and their customers should not become the obligation of other commercial banks," the executive said.

A senior executive at another commercial bank said that a ministry proposal instructing banks to supply funds to "good" companies was redundant.

"Since the money market this year has been very loose, commercial banks have not attempted to keep money in banks in the first place," the executive said.

"For those good companies with normal operations and regular interest pay back schedules, commercial banks will not only try to collect their loans but will also supply more funds to them when they have short-term fund needs."

But a proposal requiring the halt of margin calls on certain troubled companies was totally unacceptable, the executive said.

"When the stock price of a company drops below its net worth, normally it means that the company has a problem in its operations or its financial situation is deteriorating," the senior executive said.

"If we do not try to collect loans from these questionable companies by selling their equities as collateral, we might end up holding `wall paper' [worthless stock certificates] and be left with bad debt. Without margin calls and the selling of such equities while we can, there is no chance to decrease our losses."

Bank executives have said that some banks may have been reluctant to collect overdue loans in the past because some borrowers have political connections with the KMT.

With the KMT stepping down this month, commercial banks should take the chance to withdraw their lines-of-credit extended to certain problematic companies -- something that should have been done long ago, industry watchers said.