Government to lift bad-loan measure

To bring the country in line with international accounting standards, the government plans to cancel a preferential measure that allowed banks to set aside bad-loan loss provisions for five years after the loans are written off.

Gary Tseng (曾國烈), director-general of the Bureau of Monetary Affairs, told a seminar on Monday that, beginning in July next year, the government will nullify the measure that violated international accounting standards.

Tseng urged banks to take advantage of the preferential measure before in July next year by hastening the write-off of bad loans.

To accelerate the nation's financial reforms, the finance ministry had enacted a number of stimulus measures, including tax deductions and the five-year loan-loss provision measure, stipulated in the merger law, to encourage banks to write off their bad loans as quickly as possible.

According to the bureau, local banks wrote off a total of NT$1 trillion in bad loans last year, including NT$400 billion-worth of bad loans sold to asset management companies.

Since the measure has been widely cited by domestic banks as a major incentive to write off bad loans, the government's plan to end the provision is likely to reduce the banks' willingness to handle non-performing loans aggressively.

Asset management companies may also lose interest in competing for bad loans from local banks.