Regulators avoid questions on banking consolidation

The nation's financial regulators yesterday shied away from saying whether the deadline for consolidation of the banking sector can be met, following a foreign ratings firm's comments on Wednesday that it was an impossible mission.

"We believe our strategy and policy will effectively facilitate the materialization of the goal," Lu Daung-yen (呂東英), vice chairman of the Financial Supervisory Commission, told reporters yesterday.

The commission aimed to create a suitable environment for banking consolidation by providing catalysts through the relaxation of legal or administrative restraints and allowing the free-market mechanism to take its course, Lu said.

The catalysts included allowing financial firms to reduce capital and transfer the money to their parent companies as acquisition funds and allowing financial holding companies to conduct hostile takeovers by buying an initial stake of 5 percent in a targeted financial institution, down from a the previous minimum buy-out of 25 percent, according to the commission.

The financial regulators dodged questions about whether they are confident that the consolidation goals would be met on time, saying only that they believe in the stimulation effect, but that the market could respond before or after the deadline.

Fitch Ratings Ltd said yesterday it was unlikely that the government would meet the consolidation goal by the deadline, citing the government's rigid stance on share prices when selling state banks, as well as union problems.

The government hopes to reduce the number of state banks to six by the year's end and cut the number of financial holding companies to seven from the current 14 by the end of next year.

Meanwhile, the British ratings firm also called on the financial regulators to adopt a hard approach on bank failures to facilitate the consolidation of the fragmented banking sector.

In response, Lu said the commission had to protect financial security and confidence to prevent a financial crisis while the consolidation is in progress.

The commission tended to give weaker financial institutions the opportunity to help themselves before the Financial Restructuring Fund (金融重建基金) -- also known as the RTC fund -- stepped in, Lu said.

The financial regulators reviewed the self-bailout plans submitted by struggling banks and gave those with a high probability of success time until July 10, Lu said.