Tue, May 08, 2007 - Page 12 News List

Government must act on troubled lenders: lawmaker

By Amber Chung  /  STAFF REPORTER

In addition to the seven financial institutions already blacklisted, there are five more debt-ridden local lenders that should be taken over by the government, a lawmaker said yesterday.

A total of 12 financial institutions, or nearly one-third of local banks, have seen their losses exceed one-third of paid-in capitalization and are eligible for government takeover or suspension, Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠) said in a session of the Legislative Yuan's Finance Committee yesterday.

There are five extra troubled lenders, on the top of the existing seven blacklisted banks, that could pose a threat to local banking stability and "the government should act as soon as possible," Lee said.

The loss ratios -- net worth divided by paid-in capital -- ranged from negative 39 percent to negative 110 percent, Lee's data showed. She declined to name the lenders.

The number could increase to as many as 16 lenders, after taking into account one-time write-offs of losses incurred from the sale of bad loan assets, the lawmaker warned.

The nation's financial regulator has taken over four lenders since December, including Taitung Business Bank (台東企銀) and The Chinese Bank (中華銀行), while closely monitoring the other three blacklisted institutions, that include Bowa Bank (寶華銀行) and Chinfon Bank (慶豐銀行).

Impacted by the consumer credit abuse storm, a string of small sized banks, such as Cosmos Bank (萬泰銀行), Taiwan's biggest cash card issuer, and EnTie Commercial Bank (安泰銀行) are in urgent need of fresh capital injections due to their widening loss ratios.

In response, Financial Supervisory Commission chairman Hu Sheng-cheng (胡勝正) said the commission had demanded that these banks speed up their recapitalization plans.

The regulator had not given a universal deadline to every lender, but a deadline depending on the scale of its fundraising plan, he said.

The commission requires Cosmos to raise NT$21.2 billion (US$638 million) and to complete the first-stage of this funds injection, NT$5 billion, by the end of next month. Bowa is required to raise NT$25 billion, of which NT$4 billion must be accrued by the end of this month.

Meanwhile, as the management tussle between the government and private shareholders in China Development Financial Holding Co (中華開發金控) intensifies, lawmakers yesterday demanded that merger and acquisition plans by banks in which the state controls a stake of more than 10 percent should be approved by the legislature.

A total of 34 legislators proposed an amendment to the Financial Institution Merger Act (金融機構合併法).

However, Hu opposed the idea, saying that merger and acquisition activities are commercial transactions and the decision should be left to shareholders, not the legislature.

"We must respect market mechanisms [especially when most of the state's holdings do not exceed 50 percent of firms' shares]," Hu said.

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