Bankers urged again to cut their bad-loan ratios

Minister of Finance Lin Chuan (林全) held a breakfast meeting yesterday with the heads of 17 private banking institutions, urging them to accelerate the writing off of non-performing loans (NPL).

The ministry plans to use a carrot-and-stick approach to push down the number of NPLs.

"As an incentive, the government may give automatic approvals to banks whose NPL ratio drops below 2.5 percent whenever they apply to launch new financial products," Vice Minister of Finance Susan Chang (張秀蓮) said.

Details of the incentive will be finalized and put into action by the end of April, she said.

Local media reports said the government's plan may include giving favorable consideration to banks' applications to branch out to overseas locations, including China, or for new investments.

The ministry wants banks to reduce the number of bad loans to below 5 percent by the end of this year, she said. Financial institutions that fail to achieve the mark will be prohibited from opening new branches and paying dividends to board members, Chang said.

Lin told bankers that the ministry will adopt a stricter definition of NPLs by the end of April, Chang said. In line with international norms, the new rule will include loans that have gone sour over a three-month period.

Buffer period

The nation's banks now only calculate loans that went unpaid over a six-month period as being non-performing. Banks won't be required to adhere to the new rule until May 2005, giving managers a two-year buffer period, Chang said.

The ministry is also studying measures that will allow banks, which haven't joined any financial holding companies or mega-banks, to be able to conduct cross-selling on other financial products such as securities and insurance.

"This is to encourage strategic alliances between banks and securities houses or insurance companies," Chang said.

The plan will be finalized in April, she said.

Although the ministry has no plans to allow more banks to set up shop in China, the government will speed up reviews of high-ranking bank officials' applications to conduct business trips across the Strait, she said.

In addition, the Financial Restructuring Fund (金融重建基金) will now only require NT$908.6 billion, down from the previous estimate of NT$1.05 trillion, Lin said.

"Since the nation's NPL ratio has dropped to a certain level, the government should be able to reduce the fund's size by NT$141.4 billion," he said.

The latest estimate shows that the government needs NT$312 billion to bail out failed banks and NT$346.5 billion to absorb ill-performing banks' bad loans, he said

The ministry will budget another NT$150 billion to inject capital into banks whose capital adequacy ratio is lower than 8 percent in return for preferred stocks in the banks, Lin said.