The Ministry of Finance has banned the nation's weakest financial institutions from making loans to curb their worsening asset quality, a report said yesterday.
The decision would prohibit institutions with bad loan ratios of more than 25 percent from making more loans, Chinese-language media said.
The ministry would also require them to close poorly performing branches, stop additional loans to current borrowers and suspend loan extensions.
The measures were designed to prevent any further deterioration of the quality of assets at the weaker institutions -- which are mostly agricultural cooperatives.
The struggling financial institutions being targeted are made up of the credit units of farmers' and fishermen's associations and other credit cooperatives.
The report said some such operations in central and southern Taiwan were notorious for high levels of overdue loans due to close ties with local politics.
The ministry already imposes restrictions on the operations of institutions with non-performing loan (NPL) ratios over 15 percent, including the suspension of opening branches and interest rate limits.
Weaker financial institutions posted an average NPL ratio of 18 percent as of June this year, compared with local banks' 7.48 percent, or 10.83 percent with inclusion of other problem loans.
The banking sector including the weaker units posted combined outstanding NPLs of NT$1.70 trillion as of August this year.
The government hopes to cut the NPL ratio for the banking sector, excluding the weaker institutions, to below five percent within two years as part of its financial reforms.
A NT$140 billion-dollar state rehabilitation fund, similar to a US resolution trust, was established last year to facilitate the writing-off of bad debts at financial institutions.
Some NT$100 billion has been spent to absorb bad debts in 42 financial institutions and the remaining NT$40 billion was not enough to handle other troubled banks and poorly performing units.
The ministry has proposed expanding the fund to NT$1.05 billion dollars to speed up reforms in the ailing financial sector.
It has also encouraged consolidation of financial operations to improve profitability and to create stronger banking groups in the crowded financial services market.
Meanwhile in other finance news, the government may stop disclosing results of state loan auctions after the second 10-year government bond sale this year attracted a record-low yield, another local media report said, citing an unidentified Ministry of Finance official.
The government yesterday sold NT$30 billion (US$879 million) of the bonds at an average yield of 3.287 percent, 43.7 basis points lower than its previous sale of bonds of similar maturity in March.
Consumers and companies have reined in spending and loan demand, leaving the nation dependent mainly on exports to help the country recover from its worst annual slump on record last year.
RSS