CDIC takes over bank's operations

The Central Depository Insurance Co (CDIC, 中央存保) took over the debt-ridden Kaohsiung Business Bank (高雄企銀) by order of the Ministry of Finance, a CDIC official said yesterday. This is the second troubled commercial bank that the CDIC has taken over in recent years.

In May 2000, the company took over Chung Shing Bank (中興銀行).

"We have followed the ministry's request to take over the management of the Kaohsiung Business Bank," said an unnamed CDIC official.

The ministry instructed the CDIC to manage Kaohsiung Business Bank for five months after the bank failed to sell NT$5.5 billion (US$157 million) of its shares in a sale designed to boost its capital. The bank's liabilities exceed its assets by NT$2.9 billion.

The Kaohsiung Business Bank "is no longer able to shoulder risks because of its deteriorating finances," the ministry said in a statement. It is in "danger of defaulting on payments and infringing on the rights of its depositors."

The Kaohsiung Business Bank has 52 branches, mostly in the southern part of Taiwan, and 910 employees. Its deposits are insured by the CDIC.

The government is encouraging lenders to combine into a smaller number of more financially solid financial institutions in the face of growing foreign competition following Taiwan's entry into WTO.

There are more than 300 banks, credit cooperatives and farmers' and fishermen's associations in Taiwan.

The government has passed laws making it easier to merge, recover funds from delinquent borrowers and sell off loans to asset management companies.

The CDIC has taken over the Kaohsiung Business Bank under financial-reconstruction-fund regulations, a mechanism similar to the Resolution Trust Corp in the US.

Depositors' funds and other debts will be fully protected and the bank will operate as usual, the statement said.

After taking over the Chung Shing Bank 19 months ago, the finance ministry is now trying to sell the bank through public bidding, according to former finance minister Yen Ching-chang (顏慶章).