Lin Chuan haggles with lawmakers over funding

Minister of Finance Lin Chuan (林全) faced severe criticism yesterday from lawmakers while defending a proposal to increase the Financial Restructuring Fund (金融重建基金) from NT$140 billion to NT$908.6 billion.

The government plans to use the restructuring fund to bail out financially distressed banks, reduce the nation's non-performing loan (NPL) ratio and help ill-performing banks to return to good financial health.

Many legislators questioned how the fund would be managed, saying the lack of a proper monitoring mechanism at the Ministry of Finance was a problem.

PFP Legislator Thomas Lee (李桐豪) rejected the ministry's proposal, arguing that the government only needs to recapitalize the fund with another NT$160 million.

According to Lee, the bail-out of debt-ridden Chung Shing Bank (中興銀行) and the Kaohsiung Business Bank (高雄企銀) is expected to cost NT$73.9 billion and NT$23.5 billion respectively, while another three troubled private banks would cost less than NT$45 billion to assist.

Lee refused to identify the troubled banks, whose assets may soon turn negative and need to be taken over by the government.

PFP Legislator Christina Liu (劉憶如) said that the government needs "less than NT$400 billion" in the fund to bail out financially distressed banks.

A tentative plan by the ministry to bring down the NPL ratio to below 5 percent and the capital adequacy ratio to over 8 percent within two years of new funding approval will result in a "waste of taxpayers' money," Liu said.

She proposed the establishment of an independent asset-evaluation committee to decide which banks should be bailed out and how much should be spent on NPLs. The proposal was endorsed by 115 lawmakers.

Lee and Liu also disagreed with the government's plan to act as an asset management company and buy back NPLs or invest in badly performing banks in return for preferred stocks, saying that "the government should allow market mechanisms to prevail."

In early March, the finance ministry revised the fund's budget to NT$908.6 billion, saying it needed NT$312 billion to bail out failed banks and NT$346.5 billion to absorb defaulted bank loans.

In addition, the ministry plans to allocate 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.

Grilled by KMT Legislator Lo Ming-tsai (羅明才), Gary Tseng (曾國烈), director general of the finance ministry's Bureau of Monetary Affairs, said that institutions that are maintaining high NPL ratios include Hualien Business Bank (花蓮企銀) at 29 percent, the Taitung Business Bank (台東企銀) at 25.7 percent, the Bank of Overseas Chinese (華僑銀行) at 16 percent and Taichung Business Bank (台中企銀) at 14.9 percent.

But Tseng assured Lo that the assets of these banks haven't turned negative yet.

Despite being lambasted by legislators, Lin, nevertheless, urged the legislature to accelerate the fund's approval.

He said that the longer it takes to pass the law, the more losses troubled banks will incur to the detriment of government coffers.