Sat, Jan 20, 2001 - Page 17 News List

Public funds to be used to help banks

FINANCE At the conclusion of a two-day summit, the Ministry of Finance announced that it will be making adjustments in its strategy for assisting ailing domestic banks

By Tsering Namgyal  /  STAFF REPORTER

Minister of Finance Yen Ching-chang (顏慶章) said yesterday the government will earmark taxpayer's money to bail out troubled financial institutions -- and will not push healthy banks to merge with weaker financial institutions.

"We are allocating public money to solve problems at the poorly-performing financial institutions," Yen said at the closing session of the 2001 Taiwan Economic and Financial Summit, which he chaired.

Top international bankers and economists attended a two-day seminar, organized by Academia Sinica (中央研究院), during which they discussed how Taiwan could best face up to the challenge of financial restructuring.

The government will not seek "bank mergers for the sake of mergers" and will only encourage mergers between healthy banks, usually dubbed as a "merger of equals."

The statement signifies a policy shift from the government's previous practice of coercing healthy banks to take over weaker banks -- as exemplified in the recent merger between the state-owned Taiwan Cooperative Bank (TCB) and the embattled Chinfon Bank.

"In the past we have encouraged good banks to merge with bad banks," Yen acknowledged. "But it will not be a policy that we are going to pursue in the future."

The announcement echoes the suggestions made by several leading financial experts on Thursday, who were unanimous in their skepticism over the government's policy to force good banks to take over bad banks.

Yen said that the government meanwhile will try to create a legal environment for asset management companies (AMCs) to "expedite the disposal of the non-performing loans," estimated to be about at least NT$700 billion in the banking system.

The government will also seek the support of the legislature to pass the Financial Holding Company Law -- which will allow financial institutions to diversify their operations, he said.

But cleaning up the bad debt problem may turn out to be more difficult than originally thought, said Gerald Corrigan, managing director of Goldman Sachs, an American firm, which is setting up Taiwan's first AMC in joint venture with Chinatrust Bank (中信銀行).

The toughest part may be in distinguishing the loans -- which are "irretrievably non-performing" -- from those which can be restructured to become performing.

"If the non-performing loans are large enough to wipe out the banks' capital, most of which are government owned," then it seems that the government may have to "write the check and pay the bill," he said.

But Masaru Yoshitomo, a former Japanese finance official who is now Dean of the Asian Development Bank Institute in Tokyo, said that the use of public funds to bail out financial institutions could become a "politically sensitive" issue.

This story has been viewed 3632 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top