Chang Hwa and Hua Nan asked to absorb 10 lenders

Hua Nan Commercial Bank (華南銀行), Chang Hwa Commercial Bank (彰化銀行) and other state-backed lenders were asked to take over most of the 36 credit cooperatives seized by the government last month, a Ministry of Finance official said.

Hua Nan, Chang Hwa, First Commercial Bank (第一銀行) and Farmers Bank of China (農民銀行) were each asked to take over five of the failed cooperatives, the official said, asking not to be identified. The lenders may have little choice but to accede to the government's request.

"This is definitely bad for these banks," said Nora Hou, a banking analyst at CLSA Global Emerging Markets in Taiwan.

Taiwan is home to about 50 banks and 400 cooperatives and farmer and fishermen associations, many of which are grappling with rising defaults.

Chang Hwa will probably take over five cooperatives, with details expected to be in place by tomorrow, said Hsieh Chao-nan, the bank's spokesman.

Land Bank of Taiwan (土地銀行) and Taiwan Cooperative Bank (合作金庫) are being asked to take over four cooperatives each. Bank of Taiwan may take over three of the companies.

Privately owned Sunny Bank (陽信銀行) and Makoto Bank (誠泰銀行) are being asked to take three cooperatives between them, and state-run United World Chinese Commercial Bank (世華商銀), which earlier took over one cooperatives, will take over another, said spokesman Chen Chien-chih (陳謙治). "We're cooperating with the government's request."

The government's seizure of the credit cooperatives was the strongest signal yet that it's serious about cleaning up the financial industry.

At least a quarter of the 2,400 staff at the 35 cooperatives could lose their jobs as a result of the seizures, the finance ministry official said.

The cooperatives shouldn't be too much of a burden on the nation's top banks, though the government should try and let the industry resolve its own problems in future, said Roland Wee, who helps manage US$1.2 billion in Asian equities at ING Investment Management Asia.