Taiwan's biggest ever banking reform is expected to succeed in preventing a possible banking crisis and wiping out widespread corruption in small financial institutions, officials and analysts said yesterday.
In a plan launched on Friday to overhaul the ailing banking industry, some 200 banking officials were sent to 36 small credit unions or cooperatives, most of which operate in southern Taiwan.
PHOTO: LIN CHENG-KUNG, TAIPEI TIMES
The 36 small credit unions and cooperatives, with a combined negative net worth exceeding NT$30 billion, would be taken over by eight state-controlled banks if deemed unfit to continue operating.
"It's definitely a step in the right direction, though it should have been done a long time ago," said Huo Teh-ming (
The former KMT government was notorious for the cosy links it had with officials of the the troubled cooperatives and credit unions. Widespread corruption had allegedly been tolerated by the KMT government in return for help in securing power through vote-buying in elections.
Over the past six years more than 40 grassroots financial institutions have reported runs on their deposits.
"It is important to accelerate the process since the cost for such reform increases NT$10 billion each year when it's stalled," said KMT lawmaker Chu Li-luan (朱立倫).
The reform process will prevent Taiwan's banking sector from deteriorating further by "separating the rotten apples from the good ones," said Bentham Hung, a fund manager at Fuh-Hwa Securities Investment and Trust Corp (復華投信).
"It is expected to revive domestic confidence and steer the island clear of a possible banking crisis," he said.
The stock market reacted positively towards the latest reform efforts, rising 43.85 points or 0.9 percent to 4,520.76.
"Investors scrambled to buy financial shares in anticipation that healthy financial institutions will benefit from the banking reforms," Hung said.
Fubon Securities Investment Service Co Ltd (
Of the 36 institutions, 14 have agreed to turn their management over to a NT$140 billion (US$4.06 billion) rehabilitation fund, akin to a US-style resolution trust company.
The remaining 22 firms will be supervised by the government's financial rehabilitation fund management committee for up to two months, and will be taken over by the fund if they show no improvement, Minister of Finance Yen Chin-chang (
The fund was established last month to absorb troubled financial firms with negative net worth, ahead of the transfer of their operations to stronger banks through mergers or acquisitions.
However, the targeted institutions may only be the tip of the iceberg since there are some 300 such credit unions and cooperatives, which reported over NT$200 billion in non-performing loans at the end of June, Huo said.
This amount was less than 20 percent of the total amount of bad and non-performing loans at domestic banks, which hit a record of NT$929.1 billion at end-June.
"But the latest effort sends out a clear message to other problematic banks that the government is determined to overhaul the ailing banking industry," Huo said.
It was also important for the government to first tackle the smaller institutions instead of the bigger banks to avoid sparking panic among local investors and depositors, he said.
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