Control over Chung Shing to continue

The Central Deposit Insurance Corp (CDIC) will likely need to continue its stewardship of debt-ridden Chung Shing Bank (中興銀行), government officials said yesterday.

CDIC took control of the ailing bank two years ago. It was scheduled to relinquish management authority on March 25, but now government officials say CDIC may stay in charge for another three months.

A senior official at the Ministry of Finance said yesterday the government is attempting to find a buyer for Chung Shing, but additional time was needed.

"We're still cooking up a deal with other banks, each of which may need at least two months to conduct due diligence on Chung Shing's books before offering a price," Gary Tseng (曾國烈), deputy director general of the Bureau of Monetary Affairs under the finance ministry, told lawmakers yesterday.

Tseng said the ministry hopes to close a deal "within three months, but it would be the buyer's call."

There are several possible candidates interested in Chung Shing, the finance official said.

But he refused to confirm media reports that the ministry has instructed Land Bank of Taiwan (土地銀行), Bank of Taiwan (台灣銀行) and Chiao Tung Bank (交通銀行) to take over the ailing financial institution, saying "confidentiality agreements have been signed."

In addition, there have been reports that a multinational bank has recently expressed interest in buying Chung Shing.

Tseng in his comments yesterday also acknowledged that the bank may have to write down roughly NT$29.8 billion in bad loans.

Minister of Finance Lee Yung-san (李庸三) earlier said Chung Shing was sitting on approximately NT$40 billion in bad loans.

The government in January invited foreign and domestic banks to bid for Chung Shing, but none so far have shown interest in bailing out the sinking financial institution.

To shore up the bank's operations, finance officials plan to tap the Financial Restructuring Fund -- similar to the Resolution Trust Corp in the US -- which has about NT$60 billion on hand.

But the fund's assets are too few to deal with the nation's bad-loan problem.

"The fund, accounting for just 1.4 percent of the country's GNP, is too small to provide flexibility in dealing with [bad loans]," Tseng said. The finance official said the ministry plans to raise another NT$200 billion to add to the fund, although the government hasn't yet said how.

DPP legislators Chiang Chao-yi (江昭儀) and Chen Mao-nan (陳茂男) yesterday sought an explanation as to why Chung Shing's financial health seemed to worsen after the government took over two years ago.

Pan Lung-cheng (潘隆政), CDIC executive vice president, said the economic downturn and collateral depreciation were among the reasons for the rise in bad loans. In addition, there was a huge outflow of savings deposits after a bank run in March 2000, Pan said.

"The property market has declined by 20 to 30 percent over the past two years, further diminishing the value of the bank's non-performing assets," Pan said.

To keep Chung Shing going, Pan said officials have taken steps to reduce the bank's credit risks when it comes to underwriting loans. Also, 223 staff members have been cut and salaries have been reduced between 3 percent and 30 percent.

"We've helped the bank save an average of NT$20 million monthly," Pan added.

Fred Chen (陳上程), director general of the bank examination department at the central bank, urged the government to act more swiftly at the first sign of trouble at financial institutions.