Central bank says NT$1.42 trillion of loans may go bad

Taiwan's central bank said as much as NT$1.42 trillion (US$41 billion) of bank loans were bad or showed signs of going bad at the end of June, a rise of 8.4 percent from NT$1.31 trillion at the end of March.

At the end of the quarter ending June 30, NT$929.1 billion, or 6.47 percent of outstanding credits extended by domestic banks, were non-performing, Taiwan's central bank said. A further 3.44 percent, or NT$493.8 billion worth of loans, are "under surveillance" and may turn bad.

Taiwan's banks are lumbered with billions of dollars of loans to manufacturers that can't compete with cheaper producers elsewhere in Asia and to technology companies that have been hurt by slumping demand in the US and Europe. In June, Minister of Finance Yen Ching-chang (顏慶章) said about 9 percent of loans by Taiwan banks are past-due.

"A number of 10 percent is closer to the truth, but there is still a gap," Lin Tsui-pin (林翠萍), who manages NT$45 billion in stocks at Prudential Securities Investment Trust Co (保誠投信), said before today's announcement. "There are so many ways banks can manipulate their books."

The government is encouraging mergers to boost efficiency and cut non-performing loan ratios that are dissuading banks from lending. Taiwan's parliament passed legislation in June allowing the creation of holding companies to spur mergers among the island's more than 500 banks, brokerages and insurers.

Rising non-performing loans are slowing an economy already struggling with falling exports and weak domestic demand amid record-high unemployment.