The nation's bad debts might be larger than expected after Standard and Poor's Ratings Services (S&P) said its estimated non-performing loan (NPL) ratio for Taiwan was higher than the official figure.
S&P estimated an average NPL ratio of 4 percent for local banks, in comparison with the Financial Supervisory Commission's 2.32 percent as of March.
"Our figure includes defaulted loans under the debt restructuring program that are defined as performing loans by local banks, and some questionable lending from a cautious perspective," Susan Chu (
Chu also said the company's estimated NPL ratio ranged as high as 18 percent between 2001 and 2002, compared with an official NPL figure of 11 percent at that time.
Financial conditions at a handful of second-tier banks have worsened at an alarming pace because of consumer credit abuse and these lenders are in urgent need of capital injection.
"Small banks' widening financial gap is a delayed effect as their capital structure cannot afford an instant cleanup of bad assets as bigger rivals have done," Taiwan Ratings analyst Eunice Fan (范維華) said.
The ratings agency did see a slow drain of deposits from the troubled banks, but it did not trigger a systemic crisis as the financial regulator and central bank were able to help with liquidity to steady people's confidence, Fan said.
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