Industry watchers are harshly criticizing a government order that strong-arms banks into extending loans to traditional industries.
According to Wang Yaw-shing (王耀興), director general of the Ministry of Finance's Bureau of Monetary Affairs (金融局), any bank that doesn't follow the government's line "will find it difficult to conduct business in the future."
Violators of the new policy are expected to face difficulties when it comes to applying for new branches, issuing bonds or applying for other new business ventures.
Wang made the remarks while meeting with executives from 15 major commercial banks yesterday. Also attending the meeting were Minister of Finance Yen Ching-chang (顏慶章) and Central Bank of China Governor Perng Fai-nan (彭淮南).
The Bureau of Monetary Affairs oversees the banking industry for the Ministry of Finance.
Analysts were alarmed yesterday by government's tactics.
"The warning to the banking industry is outrageous. For government officials to intervene in the loan-making policies of the banking industry invalidates their position as civil servants," said Norman Yin (殷乃平), finance professor at Chengchi University.
"If the government does not guarantee these loans, how can they request the commercial banks to take on the risk?"
According to Bureau of Financial Affairs, the 15 commercial banks control more than 65 percent of the banking market in Taiwan.
The new policy follows complaints from traditional industry executives that commercial banks have been reluctant to provide loans to them.
Executives say banks simply pay lip service to the finance ministry and the central bank in order to appear as though they are taking steps to help traditional firms.
At the end of the meeting, government officials announced four directives for the banking industry.
In addition, any foot-dragging in providing loans will result in bank executives having to report to the Bureau of Financial Affairs on a monthly basis.
The four directives are:
-- Before next April, banks should not reduce any existing line of credit to corporate clients with normal operations.
-- All banks will be required to file a written report that details loans provided to private companies from the beginning of 1999 until now. Negative loan growth must be reported to the Bureau of Financial affairs every month.
-- In order to better understand customer needs, banking industry executives above the rank of vice president must visit at least 10 corporate clients in the next two months.
-- All banks will be required to study the details of the administration's recently proposed NT$450 billion loan package aimed at helping traditional industries.
As of Nov. 24, according to the Bureau of Financial Affairs, 1,207 loan cases totaling NT$11.55 billion have been approved. That figure is less than 3 percent of the government's NT$450 billion loan package.
Nevertheless, it remains to be seen as to whether banks will adhere to the government's plan.
"What will happen is that only state-run banks will obey such orders -- not private banks," Yin said.
"If they punish commercial banks that go against the policy, foreign bankers will flee the market.
"The era of dictatorship is over, but it seems that these `officials' have not realized it."
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