Premier Yu Shyi-kun is scheduled to meet with leaders of grassroots financial institutions located in Southern Taiwan today, in a move to assure them the government's risk-control mechanism is aimed at improving their future operations.
The government's three-tier risk control mechanism prohibits the credit units of grassroots farmers' and fishermen's associations with a non-performing loan (NPL) ratio above 10 percent from absorbing new savings from non-members.
It also prohibits them from offering interest rates on savings that are higher than the interest rates of Taiwan Cooperative Bank (合作金庫). Granting unsecured loans or granting loans to their own board members is also forbidden.
"We hope through the meeting we can reach a win-win consensus," an aide close to the premier told the Taipei Times yesterday, on the condition of anonymity. Minister of Finance Lee Yung-san (李庸三) and Council of Agriculture Chairman Fan Chen-tsung (范振宗) are accompanying Yu on the trip, the aide said.
Since the mechanism also forbids credit departments with NPL ratios of between 15 percent and 25 percent from granting new loans of more than NT$5 million.
Those with NPL ratios of more than 25 percent will not be allowed to provide extensions on old loans or establish new branches, local credit unit officials have argued that the government measures would seriously threaten their survival.
But the aide denied suggestions that the south-bound trip by Yu is intended to appease angry leaders of the cooperatives.
"The Cabinet will never back out of the new rules that have been enacted to effectively monitor performance of the credit departments of grassroots farmers' and fishermen's associations," the aide said. "But the Cabinet will take credit unit officials' opinions into account to slightly revise the scheme's supporting measures."
To ease potential opposition, the Cabinet last week said it will seek ways to help transform these credit units into commercial banks by merging them with other financial institutions, or eventually establishing an agricultural bank.
Local media yesterday reported that the Cabinet also plans to propose incentives at today's meeting, encouraging credit units to reduce the ratio NPLs. The incentives will include allowing credit units to lend an extra NT$1 million if their NPL ratio is cut by 3 percent.
The premier's aide declined to confirm those reports, saying any proposed incentive would have to be finalized at the meeting.
Upholding the risk-control mechanism's effectiveness, Lee on Thursday told the legislature that NPL ratios of the credit units will be greatly improved after the new scheme is put in place.
He said that the overall NPL ratio among credit units declined from 21.53 percent in June to 19.2 percent in September while the number of credit units, which have an NPL ratio of over 25 percent, has dropped to 66 as of September from July's 95 units.
Within the past two months, the number of credit units with an NPL ratio of between 15 and 25 percent increased from 72 to 73 units; and the number of credit units with an NPL ratio of between 10 and 15 percent increased from 46 to 56 units. Meanwhile, the number of credit units with an NPL ratio below 10 percent increased from 65 to 83 units.
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