Chung Shing Commercial Bank a hot potato

The debt-ridden Chung Shing Commercial Bank (中興銀行) is likely to be taken over by Bank of Taiwan (台灣銀行), Chinese-language media reported, citing government sources yesterday.

But a Ministry of Finance official denied the report, telling the Taipei Times yesterday that, "The ministry has not made any decision on how to resolve the Chung Shing situation."

The Bank of Taiwan, which has a capital-adequacy ratio of 16.49 percent and a net worth of almost NT$150 billion, has the capacity to take over Chung Shing Commercial. The Bank of Taiwan's assets total NT$2.3 trillion, the report said.

"The Bank of Taiwan is best qualified to take over Chung Shing, because its strong balance sheet can easily absorb Chung Shing's bad assets," Chung Shing spokesman Pai Ching-chung said.

The financial reconstruction Fund (金融重建基金), a mechanism, similar to the Resolution Trust Corp in the US, estimated "under the strictest standard" that Chung Shing has NT$16.4 billion (US$467 million) more liabilities than assets and an operating fund shortfall of about NT$30 billion, Pai said.

One pundit said the move didn't make sense.

"It would be an unwise decision to chose the Bank of Taiwan to take over Chung Shing Commercial," said Lee Tong-how (李桐豪), a finance professor at National Chengchi University.

"The most efficient way to resolve the Chung Shing situation is to set up a bridge bank, which would run the problematic bank for three to five years, then sell it to anyone who is qualified and interested in it."

The ministry has promised to use state-run Resolution Trust Corp's funds to bridge Chung Shing's cash shortfall before a buyer can be found.

"The government has promised to polish Chung Shing to attract buyers," Pai said.

"For Chung Shing Bank to be taken over by another state-owned bank is the worst possible choice," Lee said.

"The government can either shut down the bank or sell the bank to anyone who is qualified. The worst choice is to leave the problem to a state-run bank. The move would simply errode the Bank of Taiwan's finances."

The finance ministry took over Chung Shing Commercial's management in August 2000.