Wed, Jul 07, 2004 - Page 11 News List

FSC tells banks about recent regulatory changes

By Joyce Huang  /  STAFF REPORTER

The Cabinet-level Financial Supervisory Commission yesterday held a meeting to brief the nation's domestic and foreign bankers on the newly-established organization's financial regulatory changes.

"The nation's central deposit insurance system will soon change from providing a full coverage to covering only the insured," the commission's chairman Kong Jaw-sheng (龔照勝) said yesterday at the meeting, urging banks to come up with contingency plans to deal with the change.

According to Johnson Chen (陳戰勝), president of the Central Deposit Insurance Corp (CDIC, 中央存保), the government has no intention to extend the establishment of Financial Restructuring Fund (金融重建基金), which aims to bail out debt-ridden banks, beyond its termination date of next July.

Only losses of banks that are insured will be covered should any bank failure occur, before then, Chen said.

The legislature, in mid-June, gave its go-ahead to extend the fund, which originally expired this Friday, for another year, although the government's proposal to expand the fund's size from the current NT$140 billion to some NT$680 billion has yet to be reviewed due to a disagreement on whether non-depository debts should be covered.

Therefore, Gary Tseng (曾國烈), head of the commission's banking bureau, yesterday warned participant banks of potential systemic risks shall the legislature decide to cut the fund's proposed size and veto the clause to cover non-depository debts in the upcoming legislative sessions.

After two recent auctions succeeded in selling off the failed Kaohsiung Business Bank (高雄企銀) and the Fengshan Credit Cooperative (鳳山信合社) in Kaohsiung County, the government has prioritized the auction of Chung Shing Commercial Bank (中興銀行) once the fund's size is expanded, Tseng said, adding that the government may hold auctions to sell of part of the defaulted bank's good assets such as its 50 coveted outlets.

To beef up the banking sector's competitiveness, Tseng yesterday further encouraged banks to sustain their aggressive actions toward the clean-up of bad loans.

He said that he hoped to see the nation's bad-loan ratio, excluding loans under observation, to fall below 2.5 percent from the current 3.71 percent by next July when international accounting standards are incorporated to include loans under observation.

Tseng added that he also hoped to see the ratio of loans under observation to stay below 2.5 percent. The ratio fell to as little as 1.42 percent in May.

To facilitate cross-strait financial services, Tseng yesterday vowed to make efforts to strike for cross-strait cooperation for financial supervision.

In lieu of official cross-strait negotiations to initiate the discussion of relaxation on cross-strait financial restrictions, Tseng yesterday said that Taiwan will continue to unilaterally relax restrictions on the operation of off-shore banking units and direct banking units so as to meet the growing demand for cross-strait financial services.

Domestically, the banking sector's consolidation will also be encouraged with the aim of letting foreign banks take up stakes in state-run banks, Tseng said.

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