Fri, May 19, 2000 - Page 17 News List

CDIC funds likely to be insufficient

BAILOUT The nation has just NT$2.7 billion in funds available in case any of 458 financial institutions fail

By Stanley Chou  /  STAFF REPORTER

The chairman of the Central Deposit Insurance Company (CDIC, 中央存保) said yesterday that monetary reserves may be insufficient to deal with potential problems in the banking industry, noting that overdue loan ratios for the nation's banks were too high.

Lin Wei-yi (林衛義) made the comments in a meeting with members of the Legislative Yuan's finance committee, which supervises the insurance fund's operations. The CDIC gets its reserves from annual rate fees paid by financial institutions.

According to the insurance fund, there is just NT$2.7 billion (US$88 million) in bailout money on hand in case one of the nation's 458 financial institutions fail.

"With so many financial institutions currently insured by the CDIC and the overdue loan ratio of many credit cooperatives higher than 50 percent, how could the CDIC meet it obligations if several institutions failed at once?" asked Lai Shi-bau (賴士葆), a member of the finance committee. "How much more does the CDIC require in reserves in order to meet its obligations?"

Lin responded, saying that if Taiwan were to hold 1.2 percent of the nation's bank deposits in reserves -- the standard in the US -- another NT$900 billion (US$30 billion) would be need.

"Based on the current rate of collection, Taiwan would need at least another 15 years to accumulate sufficient reserves," Lin said. "If we set a short-term target of NT$30 billion, with an annual revenue of NT$3 billion currently, it would take 10 years to accomplish the short-term goal."

But if the insurance fund needed some emergency cash, it would then have to borrow from the Central Bank of China (央行), Lin said.

Legislators also questioned CDIC officials over the organization's deposit insurance rates, complaining that the rate system is unfair.

Currently the agency charges between 0.05 to 0.06 percent of a financial institution's total deposit balances, depending on the risk level of the institution.

Chen Chung (陳沖), deputy finance minister, said that there were four countries -- including the US, Canada and Australia -- that use a varied insurance rate system.

Taiwan is currently reviewing the system to decide whether a change is required. Chen stressed that current rates, however, were much lower than most countries in the world.

Another topic of discussion was Chung Shing Commercial Bank (中興銀行), which CDIC executives said a number listed companies were interested in taking over.

"A number of state-controlled banks have expressed their interest in Chung Shing Commercial Bank," said Chen Chang-sang (陳戰勝), CDIC's president.

Lin also said several large companies and other financial institutions have expressed interest in Chung Shing, but were waiting for the bank's latest financial disclosures.

Both Chen and Lin declined to name the identity of the interested parties.

Legislators also questioned the timing of bank runs on both Chung Shing and Taiwan Development Trust Company (台開信託), noting that the panics took place in the presidential election's aftermath.

They said the runs may have been a part of a KMT revenge move carried out by the Ministry of Finance (財政部) and related financial examination agencies.

But Chen Chung downplayed the theories. "Financial examinations are part of a routine annual schedule and have nothing to do with any post-election political revenge," the deputy finance minister said. "According to the schedule, 40 percent of examination work will be completed at the end of this month and the remaining 60 percent at the end of the year."

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