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CDIC plans free bank insurance

Central Deposit Insurance Corporation chairman Ray Dawn, left, and president Johnson Chen announce that the corporation's deposit coverage has gone up from NT$1 million to NT$1.5 million, so that 96 percent of depositors are now covered. The announcement was made at a press conference in Taipei yesterday. PHOTO: LAN CHUN-TA, TAIPEI TIMES

The state-run Central Deposit Insurance Corp (CDIC, 中央存保) aims to offer insurance coverage to banks that are performing well at no cost after the CDIC's funds reach NT$200 billion (US$6.15 billion).

This proposal is aimed at addressing what some call an unfair situation in which there is not much difference between the premiums paid by troubled banks and those that perform well, a CDIC official said yesterday.

"Large-sized financial institutions are currently paying between NT$100 million and NT$200 million in insurance premiums to the CDIC each year," Johnson Chen (陳戰勝), CDIC president, said yesterday at a press briefing.

"These institutions would be able to save their money if they reached the CDIC's standards, such as having a capital adequacy ratio higher than 10 percent, a non-performing loan ratio lower than 5 percent and profitability that meets the market average," he said.

After taking over five debt- ridden banks this year -- the Enterprise Bank of Hualien (花蓮企銀), Taitung Business Bank (台東企銀), China United Trust and Investment Corp (中聯信託), The Chinese Bank (中華銀行) and Bowa Commercial Bank (寶華銀行) -- Chen said the CDIC still had NT$7 billion remaining in its coffers. The CDIC may have to borrow money from state-run banks to pay HSBC for its acquisition of The Chinese Bank earlier this month.

Chen said that because of the insufficient funds available for financial restructuring, the CDIC was covering 80 percent of the payments to buyers taking over debt-ridden banks, while the government's financial restructuring fund was paying the remaining 20 percent.

The government financial re-structuring fund is expected to come to an end in 2010 after it resolves the takeover of the nation's seven ailing banks, he said.

"Approximately NT$4.4 billion of the CDIC's funds comes from the insured institutions' annual premiums," Chen said.

"Two percent of the business tax for financial services will be injected into the CDIC's funds beginning in 2011 and is estimated to come to about NT$17 billion each year, accumulating NT$21.4 billion annually," Chen said. He estimates that starting from 2011, it would take the CDIC 10 years to reach its goal of NT$200 billion in 2021.

Beginning July 1, the nation's depositors will be able to receive NT$1.5 million maximum in insurance coverage per insured institution under the amended Deposit Insurance Act (存款保險條例).
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