Bankers warn of impending crisis

A leading banker in Taipei yesterday advised his competitors to brace for a "stiff challenge" following Taiwan's expected entry into the WTO.

Liang Cheng-chin (梁成金), chairman of Chiao Tung Bank (交通銀行), said during a speech in Taipei yesterday the sharp increase in the domestic overdue loan ratio combined with the large number of weak banks may spell trouble for the banking system.

He is the latest official to join the debate over the health of the domestic banking system after the London-based Economist magazine last week predicted a banking crisis in Taiwan next year.

Liang, former deputy governor of the Central Bank of China (中央銀行), was tipped as the likely successor to the current central bank Governor Perng Fai-nan (彭淮南) when the latter was asked to be vice premier during last month's Cabinet reshuffle.

He said the number of banks in Taiwan has increased from 17 in 1991 to the present 48; while the number of bank branches has gone up from 756 branches to 2,408 during the same period.

Earnings at Taiwanese companies have dropped consistently over the past three years, which is "an extremely big warning," he said.

Liang's five survival tips for local banks are as follows: implement e-banking, seek mergers and expand business activities, slash business tax for financial institutions and the reserve requirement ratio, revise the banking law to allow companies with a stock price below their face value to raise cash in the stock market, and allow Taiwanese banks to open up branches in China.

Wang Tso-yung (王作榮), a former head of the Control Yuan and a respected economist, said "next year will be critical for Taiwan in terms of whether it is able to avert a financial crisis."

While Taiwan's economy looks strong when measured by export-related economic indicators, increasing pressure from China to force Taiwan into accepting its "one China" policy may trigger an economic crisis, Wang was quoted as saying yesterday at a financial seminar organized by the opposition New Party.

Wang, known for his outspoken analyses of the economy, said that Taiwan is not facing a financial crisis -- similar to that which rocked the East Asian economies in 1997 -- but could experience something more akin to the Japanese burst "bubble economy."

Given the looming pressure from China and the fears of a liquidity squeeze, he said, it is "difficult to be optimistic" about the economy.

Meanwhile, recent troubles in the economy seem to have forced banks to turn conservative, pushing interest rates on the black market to record high levels.

In October, kerb market interest rates jumped to an average of 30.36 percent in Taichung, 24.84 percent in Taipei, which is up 0.72 percentage points from September, according to local Chinese-language media reports.