Ministry of Finance tells banks to work on assets

The Ministry of Finance yesterday appeared to be moving forward on its promise to tackle problems in the troubled financial sector by warning six commercial banks yesterday that they need to quickly improve their asset quality.

The ministry singled out the six banks, including the Bank of Overseas Chinese (華僑銀行), because their losses exceed one-third of their capitalization, a sign of deteriorating asset quality, a banking analyst said.

"Growing losses are weakening banks' net assets, which will in turn worsen their insufficient capital problems," said William Fong (方偉昌), analyst at PrimAsia Securities Co in Taipei. "The government is trying every means to help revamp the banking sector."

The Bank of Overseas Chinese had NT$26.33 billion worth of non-performing loans (NPL), or 14.89 percent of the total, as of September. It is among 52 banks requested by the government to reduce their NPL ratio to 5 percent within two years and increase capital adequacy ratios to 8 percent.

The Bank of Overseas Chinese disclosed that its losses amounted to NT$8.17 billion against capitalization of NT$16.75 billion as of September. The bank's capital adequacy ratio -- a measure of the amount of a bank's capital expressed as a percentage of its risk weighted credit exposure -- was 4.19 percent at that time.

The ministry's list of banks in trouble includes the Bank of Overseas Chinese, Hualien Business Bank (花蓮企銀), Taitung Business Bank (台東企銀), Taiwan Development & Trust Corp (台開信託), Asia Trust and Investment (亞洲信託) and China United Trust & Investment Ltd (中聯信託), a Chinese-language media report said yesterday.

An official at the ministry's Bureau of Monetary Affairs confirmed the report.

"We have asked these banks to either raise funds or undertake mergers and acquisitions to expand their scale to solve the insufficient capitalization problem," said the official surnamed Lu.

For now, the ministry has instructed the Central Deposit Insurance Corp (中央存保) to prepare to intervene in the banks' management by participating in board meetings and toughening financial auditing, the official said.

The ministry may also seek to use the Financial Restructuring Fund (金融重建基金) -- similar to the US' Resolution Trust Fund -- to takeover these banks when the fund is boosted to NT$1.05 trillion from the current NT$140 billion, the official said.

But if these lenders cannot raise funds themselves to improve asset quality, the ministry is entitled to order their closure under Article 64 of the Banking Law, Fong said.

"Though we're not sure whether the ministry will allow banks to be closed, the banking sector should make a greater effort to improve its financial situation," Fong said.