Sat, Dec 20, 2003 - Page 11 News List

Bankers extend rollover plan for troubled loans

PAY ME LATER An association of bankers has given a one-year extension to a program that gives struggling companies more time to pay back syndicated loans

By Joyce Huang  /  STAFF REPORTER

In response to a proposal made by five major business groups, the Bankers Association of the ROC (銀行公會) has agreed to extend by one year a negotiation mechanism whereby banks can roll over troubled loans for businesses that are performing satisfactorily.

"Our Thursday meeting concluded that the mechanism, which is due to expire in January, will remain active for one more year," an association official, who requested anonymity, said yesterday.

The mechanism allows member banks to make their own decisions on whether they will extend loans -- due to be repaid this month -- until next year.

However, the association rejected a proposal, also made by five major business groups, to mandate that banks allow rollovers, the official said.

According to the official, the optional rollover proposal passed Thursday by a 23-17 vote. Those supporting the proposal argued that many enterprises in traditional industries will still be in need of capital even in the event of an economic recovery.

Through the negotiation mechanism, nearly 70 loan rollovers have been granted over the past three years to businesses whose loans are still performing, the official said.

In accordance with the mechanism's rules, businesses that are having difficulty repaying bank debt will be entitled to call for a meeting with banks participating in syndicated loans to discuss terms of a loan rollover.

The association also revised its rules concerning voting procedures on rollover decisions. Previously, meetings on rollovers required a quorum of two-thirds of the banks participating in a given syndicated loan. Rollovers had to be approved by three-fourths of banks attending the meetings. The association yesterday simplified the rules, which now merely require consent from more than half of the banks attending a meeting, the official said.

The rollover mechanism has existed for over three years.

Hsu Chen-ming (許振明), an economics professor at National Taiwan University, said yesterday that the association has turned a short-term device to bail out financially distressed enterprises into a long-term practice.

"These debts are considered loans under observation, which are very likely to go into default eventually," Hsu said, saying that the practice has put extra burdens on the nation's banking sector and has hindered efforts at financial reform.

Taiwanese lenders wrote off a combined NT$413.9 billion (US$11.9 billion) of bad debts last year as they accelerated the process of cleaning up their books by removing non-performing loans from their balance sheets. The percentage of bad loans in the banking sector fell to 7.87 percent as of Sept. 30, from 7.97 percent at the end of June.

At the end of September, about NT$1.12 trillion (US$32.9 billion) of loans were classified by the nation's central bank as non-performing and under surveillance. That compares with NT$1.13 trillion at the end of June.

Hsu also said that distressed businesses should be encouraged to undertake restructuring to turn performance around, and should not be granted loan rollovers.

"Measures such as takeovers, board and management reshuffles and streamlining will be effective in helping improve businesses, not loan rollovers," Hsu said.

Hsu sat on the board that oversaw the rollover mechanism when former president Lee Teng-hui (李登輝) was using rollovers to help local businesses weather the 1997 Asian financial crisis. President Chen Shui-bian's (陳水扁) administration has continued to use the rollover practice.

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