Minister of Finance Lee Yung-san (李庸三) yesterday said that the government's Financial Restructuring Fund (金融重建基金) may be increased by NT$910 billion to NT$950 billion.
After having used nearly NT$100 billion to bail out troubled banks in the past year, Lee yesterday said that the NT$140-billion fund currently has a balance of NT$40 billion. Therefore, another NT$910 billion will be proposed to the Cabinet for injection into the fund.
Lee made the comments after President Chen Shui-bian (陳水扁) on Wednesday, gave his endorsement to a petition designed to speed up the pace of the nation's financial reforms by reducing the non-performing loan (NPL) ratio to below 5 percent and raising banks' capital-adequacy ratio to above 8 percent within two years.
With a total of NT$950 billion in the fund, Lee yesterday added that a variety of measures will be introduced to address the nation's banking problem including an exit mechanism to shut down underperforming banks.
Lee had previously suggested that banks whose capital-adequacy ratio falls below 2 percent should be shut down immediately. The Financial Restructuring Fund, moreover, will be allowed to purchase troubled banks' impaired assets for re-sale or put down investment in exchange of banks' swap shares should their capital-adequacy ratio runs short of 8 percent, the banker-turned-minister said.
By taking up banks' stakes, Lee said that the government will then be empowered to take the initiative in facilitating mergers and acquisitions among banks, maximizing the banking sector's scale of economy and solving the nation's over-banking competition.
According to local media, Vice Premier Lin Hsin-yi (林信義) yesterday also endorsed the ministry's policy to take a tougher stance in dealing with the nation's NPLs problem.
Lin said the government should take judicial action against bank mismanagement by putting those responsible for bankrupting local financial institutions behind bars.
Meanwhile with the number of banks islandwide still a problem, pundits yesterday said the recent establishment of 14 financial holding companies may may negatively impact the banking sector over the long term, pundits said.
Addressing a seminar on Thursday, Eric Chen (陳聖德), country manager for Citibank N.A., expressed concern that these holding companies "may become too over-sized to fail" and overburden the government within five to 10 years.
Chen said that the government can't just bank on the establishment of financial holding companies through mergers and acquisitions to solve the over-banking problem. Any proposal to form a financial holding company that demonstrates little success in synergy and competitiveness in the future, should not be approved by the authorities, he said.
Liu Tai-ying (劉泰英), chairman of China Development Financial Holding Co (中華開發金控), voiced a similar idea during that seminar, suggesting further industrial consolidation is probable in this sector.
Lee expects five financial holding companies will eventually prevail in Taiwan, given the nation's scale of economy. Otherwise, over competition among numerous holding companies may trigger a banking crisis, he warned.
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