Minister of Finance says corporate loans will continue

Perng Fai-nan (彭淮南), governor of the Central Bank of China (央行), said yesterday that he will work with the Minister of Finance Yen Ching-chang (顏慶章) to help ensure that domestic banks continue extending credit to corporations.

Many economists and lawmakers have complained about Taiwan's sluggish loan growth rate, which some fear may aggravate the economic slowdown. As losses from bad loans rise, many financial institutions are turning conservative, even in the face of lower interest rates.

Perng, speaking at the Legislative Yuan yesterday, said that the Central Bank will continue to maintain a flexible exchange rate policy, adding that the Central Bank will not "randomly intervene in the financial markets."

Asked about the government's stimulus economic measures, Perng said that the Central Bank's expansionary monetary policies usually "take time to kick in" and have to work jointly with fiscal stimulus measures -- such as increased government spending.

However, Perng ensured law-makers that the Taiwanese government would not allow interest rates to drop to Japanese levels. The government's NT$810 billion economic stimulus package on public infrastructure construction will help stimulate domestic demand, Perng said yesterday, adding that the monetary policy was not the only policy option.

Asked about the increasing financial integration between Taiwan and China, Perng stressed the importance of "risk management" when investing in China. He said that the Central Bank will work with the Ministry of Finance and the Securities and Futures Commission to "study" how best to manage risks associated with cross-strait financial transactions.

"Even if we no longer use the term `no haste, be patient,' it is still important to manage financial risks [when investing in China]," he said yesterday.

Legislator Lo Ming-tsai (羅明才) yesterday said that many companies within the Formosa Plastics Group (台塑集團) have invested in China, but "apparently they have not repatriated" their profits home.

DPP legislator Hsu Tain-tsair (許添財) also urged the Central Bank to strengthen its supervision of the companies because even if companies expand into China using money raised overseas, the head office is "liable" should their China subsidiaries incur heavy losses.

Perng said that so far a total of NT$103.2 billion has flowed to China, although unofficial figures are far higher. Asked whether Taiwan will adopt a "zero-interest rate policy" like Japan, Perng ruled out such a possibility given Taiwan's relatively low ratio of mortgage loans to total loans and high asset prices. The Japanese debacle, Perng explained, is the result of a sharp drop in asset prices, particularly in property.