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Official says bank policy not normal

The head of the Securities and Futures Commission (證期會) said yesterday that a plan to give banks 10 years to write off securities investment losses was devoid of basic accounting logic.

Chu Jaw-chyuan (朱兆銓), chairman of the commission (證期會), said that the Ministry of Finance's (財政部) measure is opposed to basic accounting principles.

Chu made the comment while attending a meeting with New Party legislators. Lai Shih-bau (賴士葆), a New Party lawmaker, questioned Minister of Finance Yen Ching-chang's (顏慶章) policy, which was announced early this week.

"This policy would encourage the banking industry to become a `stock manipulating machine.' It not only violates basic accepted accounting principles, but also seriously interferes with the market," Lai said.

Chu agreed partially agreed with Lai.

"The 10-year write-off on securities investment losses indeed violates generally accepted accounting principles," Chu said. "The state-owned banks are supervised by the Legislative Yuan. Private banks, on the other hand, would be influenced to a much lesser degree by the ministry's new policy. Since all the accounting figures have to be disclosed according to accounting principles, certified by accountants and approved by the banks' board of directors, the market is unlikely to be seriously influenced by the policy," Chu said.

"Potential losses from securities investments would still have to be disclosed on the banks' balance sheets and then made public. However, to allow the banking industry to write off losses over 10 years is indeed against accounting principles. The commission should oversee this part very carefully," Chu said.

Meanwhile, the finance ministry and the Central Bank of China (中央銀行) held a second meeting with executives from 14 new commercial banks yesterday.

The outcome was identical to the first meeting held on Thursday; the executives were ordered to provide loans to traditional industries and allow securities investment losses to be written off over a 10-year period.

Commercial bank executives are being asked to enlarge their scale of lending, despite the current sour economic climate and shortage of qualified corporate clients.

"We are all in one boat," a central bank official said during the meeting. "If you could cope with government policy to provide loans continuously to industry, the banks and industry would be able to survive. If you do not cooperate, banks will not be able to survive."
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