Thu, May 25, 2000 - Page 17 News List

Bank run is evidence of wider woes

FISCAL HEALTH Economics professor Norman Yin says more than one-third of the capital at the nation's 47 commercial banks can be considered `eroded'

By Stanley Chou  /  STAFF REPORTER

A run on the Bank of Overseas Chinese (華僑銀行) yesterday is clear evidence that the nation's financial industry is in dire need of attention, industry watchers say.

The latest panic closely follows scares at Chung Shing Bank (中興銀行) and Taiwan Development Trust Company (台開信託).

Since the KMT departed from power, it has become clear that more than one-third of the nation's bank capital has been eroded by bad loans -- and analysts say this is just the beginning.

"Overdue loans in Taiwan's banking industry now total more than NT$1 trillion, or more conservatively, NT$500 billion," said Norman Yin (殷乃平), a professor at Chengchi University, who is often quoted by media on banking issues.

"Currently, total capitalization for Taiwan's 47 commercial banks is around NT$1.4 trillion. Because the bad loans have to be covered by the banks' capital, that means more than one-third of the industry's capital has already been eroded."

Yin said that according to the nation's Banking Law, any financial institution that loses more than one-third of its capital can be restructured by regulatory agencies and its management replaced.

Therefore, Yin said, almost all of Taiwan's 47 commercial banks require restructuring under the government's guidelines -- unless their overdue loan ratio is under 1 percent.

According to the latest estimates, only one bank is close to the 1 percent figure. Bank SinoPac (華信銀行) has an overdue loan ratio of 1.02 percent -- the lowest in Taiwan's banking sector.

The overdue loan ratio of many commercial banks is currently running between 4 and 5 percent. More problematic financial institutions sport atmospheric ratios, such as Taiwan Development's 26 percent. Yin said the bank "should have been closed a long time ago."

Because so many banks and other financial institutions are running "on a hollow basis," Yin said any bad news about these institutions is enough to trigger a bank run.

The three recent bank run incidents are cases in point, and how the banking system functions internally sheds light on the problem.

"During the KMT era, few bank examination reports were released after examiners completed their routine work, due to political pressure," Yin said.

"Then the regulators found a solution. They would occasionally release part of the report to the press. Once the press got a hold of it a bank run usually ensued, and then regulators had a legitimate reason to launch an investigation or start takeover measures."

In some cases, Yin said, it was the bank's insiders who released the bad news in response to internal conflicts.

Yin said the practice of leaking routine examination reports has been in use for years. But the pertinent question, he said, is whether regulators are releasing such information on a selective basis.

Yin said the recent bank runs seem to follow a similar pattern, whereby news leaks are followed by bank runs, which in turn are followed by a government investigation and takeover.

However, he stressed, the troubles at the Bank of Overseas Chinese, Chung Shing and Taiwan Development have been known in financial circles for some time.

Yin said a Commercial Times (工商時報) report yesterday of problems at the Bank of Overseas Chinese was designed to warn the general public to get their money out.

Day Lin-in (戴立寧), chairman of the Bank of Overseas Chinese immediately rebuffed the report.

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