Finance minister talks tough on easy lending

Minister of Finance Yen Ching-chang (顏慶章) said Saturday the trying economic environment may spell more bad news for the banking sector, but if more overdue loans were generated by "privileged loans" and corrupt bank executives, it would be highly unacceptable.

"If changes in the business environment of bank clients or external economic and international trading climates make the overdue loans of the financial institutions increase, this would be a normal phenomenon," Yen said. "If there were no overdue loans, banks would simply become pawn shops.

"Below certain levels, overdue loans are tolerable. But the ministry will not allow financial institutions to increase their overdue loan because of `privileged loans' or corrupt bank executives," Yen said.

A number of loan scandals have been disclosed recently, such as in the Jin-Wen (景文) scandal, which was connected to over NT$10 billion in privileged lending.

"The financial system supports economic development, and the soundness of the system can influence international investors," Yen said. "If the financial system of a country is questionable, a financial crisis could result. International investors shy away from such situations.

"This is a year of financial reform," Yen said. "The government has passed the Financial Institutions Merger Law (金融機構合併法) and is promoting mergers between banks and setting up asset management companies [to clean up the problematic loans in the banking sector]. The administration has also proposed a draft of the Financial Holding Company Law (金融控股公司法) to help to eliminate problematic financial institutions. These measures are not just slogans. Such aggressive measures have won the confidence of the international community for the determination of this administration to enact financially reforms."

According to one pundit, for some individuals, preferential loan treatment is expected.

"Most of the big banks in Taiwan are either state-owned or state-controlled, and run by retired government officials and civil servants. It's easier for them to accept privileged loans from other government officials or legislators, especially those who supervise the operation of the state-controlled banks," said Henry Cheng (鄭百亨), managing director of Manulife Funds Direct.

"It's a common practice for legislators who formerly worked at state-owned banks to get privileged loans, and most of those loans have turned into bad loans," Cheng said.

"Until state-run banks learn to prevent political influence or have been fully privatized, privileged loans and outright corruption will be hard to eliminate."