Following the passing of resolution trust corporation regulations earlier this week, the Ministry of Finance is planning to launch its clean-up operation on the problematic credit cooperatives.
According to finance ministry officials, the first wave is likely to be the farmers and fishermans' associations in Taiwan's central and southern counties, and it would take about three months to complete the clean-up.
The Legislative Yuan just passed resolution trust corporation regulations (金融重建基金管理條例) on Wednesday, which would provide NT$140 billion in funding for the administration to clean-up a number of problematic financial institutions.
Since the cost of disposing of problematic credit cooperatives would cost NT$100 million more for every three day delay, the ministry wants to solve the problem as soon as possible, according to finance ministry officials.
According to the initial plan made up by Central Depository Insurance Co (
Meanwhile, the first wave of problematic institutions that are targeted for disposition would be 15 to 18 credit cooperatives located in central and southern counties, which currently is running with negative networth.
Currently the clean-up plan is scheduled to start in the final 10 days of July, and to be completed in three months.
There would be three steps to clean up problematic grass-root financial institutions, according to ministry officials.
First, the institution would be close down, and transfer the deposits of depositors to other financial institutions, and followed by a series of disposition of bad loans and legal procedures regarding to how the bad loan was created.
Since it's a sensitive issue on which institutions would be closed down first, finance ministry officials declined to disclose exactly which ones would be among the first to be closed.
According to finance ministry, the overdue loan ratios of domestic grass-root financial institutions is currently at 17 percent, with bad loans totalling some NT$210 billion.
Ministry officials said after the resolution trust company mechanism is launched, it would significantly improve the quality of Taiwan's financial institutions.
"In the long run, weak or insolvent financial institutions should not be allowed to continue operations," said Minister of Finance Yen Ching-chang (顏慶章) in Europe.
"A mechanism to allow under-performing banks to close is in great demand in Taiwan."
The finance minister also stressed that cleaning up the grass-root institutions would not affect the general stability of Taiwan's banking sector.
"Difficulties among community lenders do not pose a threat to the health of Taiwan's financial system, because the lending insitutions account for some 7 percent of its totoal banking market," according to Yen.
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