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Taiwan Ratings sees more bank bailouts ahead

The government may take over more banks this year as depositors shun those with poor credit profiles, the local unit of Standard & Poor's Ratings Services said yesterday.

Government bailouts have led worried depositors to put their money with more reputable banks, exacerbating funding problems, said the unit, Taiwan Ratings Corp (中華信評).

The government has rescued six failing financial institutions over the past 14 months, it said.

"Fund-starved banks face significant challenges to overcome the negative sentiment and secure new business," Susan Chu (朱素徵), an analyst at Taiwan Ratings, said in a statement. "That could catapult many more banks into trouble in 2008."

The statement indicated that the worst might not be over for Taiwanese banks after last year's recovery from a surge in credit-card loan defaults that crimped earnings the previous two years.

For lower-rated banks, holders of subordinated debt and similar instruments not guaranteed by the government face increasing risks, it said.

The risk of firms and governments in the Asia Pacific region defaulting on their debt rose to records this week after American International Group Inc reported credit-default swap losses were four times higher than forecast.

Still, the local banking system "remains largely stable," Taiwan Ratings said, as the failed and vulnerable institutions account for a small proportion of assets.

Banks wrote off NT$58.3 billion (US$1.8 billion) in credit-card debt in the first 11 months of last year, about 54 percent of the amount in the same period in 2006, the Financial Supervisory Commission said.
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