Taiwan's government may be able to resell bad loans worth US$16 billion, recouping more than half of the US$28 billion it expects to spend cleaning up domestic banks, central-bank chief Perng Fai-nan (
Still, the net cost of US$12 billion equals about 4.6 percent of the nation's economy last year. This is proportionally more than the US paid in its late-1980s savings and loan bailout, Perng told a dinner in Washington last week in a speech released by the central bank yesterday.
Taiwan set up it's Financial Restructuring Fund last year to buy distressed assets from lenders in a bid to cut bad loans to about 5 percent of total lending within two years, down from 7.5 percent now.
The government is also urging the nation's 50 or so banks and more than 300 community-level lenders to merge so they can better meet demand for loans and help boost economic growth.
The central bank expects most of the costs "will ultimately be recovered," Perng said. "The government is committed to reducing financial institutions' bad-loan ratio."
The fund, similar to program in the US set up to manage its own bailout in the 1980s, was created in June 2001 with NT$140 billion to take bad loans off lenders' books, freeing them to lend again.
More funds
The government is now planning to increase its funding to NT$1.05 trillion.
That's about equal to the NT$1.06 trillion of bad loans at Taiwan's lenders in June. Counting an extra NT$474 billion of loans that are in danger of default would push the ratio to 10.8 percent, according to the central bank.
Bad loans have forced lenders to tighten credit standards; "as a result, their function as financial intermediaries has been seriously curtailed," Perng said.
The dinner at which he spoke was sponsored by Chinatrust Financial Holding Co (中信金), fourth-largest by market value of the groups that have been created under laws Taiwan enacted to encourage financial mergers.
The fund so far hasn't repackaged any bad loans for sale. Some banks have arranged their own sales.
First Commercial Bank (
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