Tue, Aug 14, 2007 - Page 12 News List

Bowa Bank opens under new management

CDIC SUPERVISION The Land Bank of Taiwan took over the day-to-day running of Bowa yesterday and no problems were reported on the first day


A Bowa Bank teller serves a customer yesterday during the first day of business under the Central Deposit Insurance Corp (CDIC). The CDIC took over control of Bowa at 3:30pm on Friday and asked the Land Bank of Taiwan to manage Bowa's day-to-day operations.


Operations at all 39 branches of Bowa Bank (寶華銀行) were stable yesterday on the first business day after the bank was taken over by the state-run Central Deposit Insurance Corp (CDIC, 中央存保), a banking official said.

"We prepared NT$10 billion [US$303.35 million] in case of a bank run, which did not happen," a Land Bank of Taiwan (土地銀行) official said on condition of anonymity. "We saw more reporters than customers."

The Financial Supervisory Commission ordered the CDIC last Friday to take control of Bowa Bank after Bowa failed to execute a recapitalization plan to meet the minimum required regulatory capital. CDIC took control on Sunday afternoon.

The CDIC, in turn, commissioned the Land Bank to run Bowa Bank during the transitional period.

The Land Bank official said yesterday's calm operations were due to the government's efforts to protect depositors' money when other banks have been taken over so that there would not be a repeat of the run on The Chinese Bank (中華銀行).

In the past year the government has also taken over China United Trust and Investment Corp (中聯信託), the Enterprise Bank of Hualien (花蓮企銀) and The Chinese Bank.

Depositors at The Chinese Bank, owned by the financially troubled Rebar Asia Pacific Group (力霸亞太企業集團), withdrew more than NT$43.08 billion in five days after it was taken over.

As Bowa Bank was listed as a financially troubled bank in January, some customers had cleared their accounts at the time, the Land Bank official said. He refused to say how much had been withdrawn since the takeover announcement.

Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor's Ratings Services, downgraded its long-term credit rating on Bowa Bank yesterday from "twB" to "twR," which means that the bank is under regulatory supervision.

The agency also lowered its "twB-" subordinated bond issue rating to "twC," reflecting the bank's increased vulnerability to nonpayment, Taiwan Ratings said in a statement. Bowa's weak assets and marginal core earnings ability turned its reported net worth to negative NT$2.254 billion at the end of June from a positive NT$419 million at the end of March, the statement said.

Declining depositor confidence will hurt Bowa Bank's funding, the ratings agency said, adding that the bank's deposit balance shrunk by 22 percent in the first six months of the year.

Even though the Land Bank had put some inter-bank deposits into Bowa, part of its subordinated debentures with outstanding value of NT$1.047 billion that were issued after July 2005 -- representing an estimated 0.7 percent of total liabilities -- are not under regulatory protection, and could face the risk of non-payment in coming months, Taiwan Ratings said.

"The future credit profile of Bowa will depend on the result of an auction likely to be held by the regulator [the Financial Supervisory Commission] to sell off the bank," the ratings agency said.

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