The unprecedented takeover of three problematic financial institutions over the weekend is unlikely to trigger a systemic liquidity crisis in the nation's financial sector, because the government has vowed to maintain financial stability, analysts said yesterday.
"We do not expect bank runs to occur at the four remaining blacklisted banks [today], and therefore there is no risk of a liquidity crisis," Jesse Wang (
The government has shown its determination to maintain the nation's financial stability, backed-up by taxpayer funds, which has allayed the public's fears, Wang said.
Last Friday night, the Financial Supervisory Commission (FSC) announced the take over of The Chinese Bank (
Financial insecurity extended to another group member when the commission decided on Saturday that Great Chinese Bills Finance Corp (力華票券), which had reported a funding gap of NT$1.7 billion (US$52.13 million), would be taken over by two creditor banks.
The intensive activity sparked public concern about a possible domino effect impacting another four blacklisted lenders, including Bowa Bank (
There were concerns that the cash-strapped government restructuring fund and Central Deposit Insurance Corp (
To build public confidence, the government has held four press conferences within the past two days to allay concerns, saying it has NT$100 billion in funds available to deal with any further bank runs.
Joint call
In an unprecedented move, the government bought front-page advertisements endorsed jointly by FSC Chairman Shih Jun-ji (
"We take the incident as a one-off event that will not lead to a giant chain reaction in the financial sector or impact the stock market as a whole," it said.
BNP Paribas retained its neutral view on financial stocks and predicted a better performance for financial and retail stocks when compared with electronics, which is experiencing a seasonal downward trend.
Nevertheless, another market watcher appeared less optimistic about the possible fallout.
"The incident revealed the problem of risk control in the banking sector," with Mega International Commercial Bank (
Tighter money?
In addition, the takeover of the bill financing company could trigger a tightening of money supply and create cash flow problems for some small and medium enterprises in the future, Yang said.
"This also indicates that the net interest rate margin narrowing as a result of price wars in an overly competitive market makes banks vulnerable to any unexpected shocks," she added.
The analyst suggested that investors stay away from financial stocks until banks' losses resulting from the program to restructure card debts are clear.
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