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Premier decides to ease rules for weak credit units

Mr. Nice Guy * Credit units will now be allowed to resume business transactions within one month, if their NPL ratio improves. * Credit units with an NPL ratio over 25 percent will now be allowed to grant loans up to NT$1 million instead of the previously established NT$30,000. * The Cabinet also introduced incentives to encourage lower NPL ratios.

After meeting leaders of grassroots financial institutions over the weekend, Premier Yu Shyi-kun vowed to call for a national assembly on agricultural financing by the year's end, addressing issues to consolidate community-level credit units of farmers' and fishermen's associations.

"The Cabinet aims to create a win-win-win situation among the nation's farmers, farmers' associations and agricultural development," Yu told seven county commissioners from southern Taiwan and officials of credit units on Saturday.

Yu reached a five-point consensus with participants after Saturday's closed-door meeting, agreeing to relax restrictions within the three-tier risk control mechanism that has regulated community-level banks since early September.

The mechanism prohibits the credit units 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 the Taiwan Cooperative Bank (合作金庫). Granting unsecured loans or granting loans to their own board members is also forbidden.

The premier, however, agreed to allow credit units to resume business transactions within one month, if their NPL ratio improves.

The Ministry of Finance had required credit units to maintain an improved NPL ratio for a period of three months before resuming "normal" business operations.

The premier also agreed to allow credit units, whose NPL ratio ranges from 10 percent to 25 percent, to accept real-estate collateral in adjacent cities or counties upon the discretion of their local governments.

The finance ministry previously forbid credit units from accepting collateral secured by properties located in other cities or counties, fearing the banks' could be hampered by jurisdiction problems.

The ministry also forbid credit units, whose NPL ratio was between 15 percent and 25 percent, from granting loans of over NT$500,000 to their sponsoring members. But the loan's maximum amount was raised to NT$3 million after Saturday's meeting, although borrowers must mortgage collateral under their own names or their spouses.

Credit units with an NPL ratio over 25 percent will now be allowed to grant loans up to NT$1 million instead of the previously established NT$30,000. No loans above NT$500,000, however, will be granted to board members or cronies of bank officials in an effort to prevent moral hazards.

The Cabinet also introduced incentives to encourage lower NPL ratios. If credit units with an NPL ratio of between 10 percent and 15 percent, for example, reduces their NPL ratio by 3 percent, restrictions on their lending maximum will be relaxed from NT$3 million to NT$4 million. The level increases to NT$5 million with an NPL write-off greater than 6 percent.

For credit units with an NPL ratio of between 15 percent and 25 percent, the maximum lending amount to sponsoring members or new members with less than a three-month membership, set at NT$3 million, will be raised by NT$500,000 upon the approval of local governments if the credit unit's NPL ratio is cut by 3 percent.

Speaking on behalf of the meeting's participants, Chiayi County Commissioner Chen Ming-wen (陳明文) said the premier has demonstrated great sincerity in confronting the problems that currently plague the nations credit cooperatives.
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