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INTERVIEW: Central Deposit Insurance prepared to jump in if Chinfon troubles continue

By Joyce Huang
STAFF REPORTER
Saturday, Sep 06, 2008, Page 12

Central Deposit Insurance Corporation president Howard Wang speaks during an interview on Jan. 25. PHOTO: LAN CHUN-TA, TAIPEI TIMES

Should debt-ridden Chinfon Commercial Bank (慶豐銀行) fail in its delayed capital-raising schedule, Central Deposit Insurance Corp (CDIC) will take control of the bank at the request of the Financial Supervisory Commission (FSC), CDIC president Howard Wang (王南華) said yesterday.

“Since such a governmental takeover would cost taxpayers big money, we hope to give the bank a certain grace period to succeed in locating strategic investors to inject fresh capital, so as to turn the bank around by itself,” Wang told the Taipei Times on the sidelines of an international seminar that the depository insurer organized to address the challenges of the troubled global financial market.

Wang said Chinfon Bank had been pushed into the red, with a negative market worth since late last year — one of three prerequisites that could force it to exit the local financial market.

As of the end of July, Chinfon Bank had reported NT$7.262 billion (US$227.8 million) in losses and the nation’s highest bad loan ratio at 29.05 percent, the FSC’s latest statistics showed.

After the bank missed its July 31 deadline to carry out its plan to raise capital, the commission offered the bank more time to close deals it promised were in the pipeline, but did not set another deadline.

Wang said the other two prerequisites that would trigger the government’s takeover mechanism in Chinfon’s case were if the bank becomes incapable of cashing or paying debts and if it is no longer worth the costs of keeping it operational.

Three CDIC officials are posted at Chinfon Bank to prevent any unethical business practices, loan irregularities or other misconduct in daily operations that would widen losses.

In addition, the depository insurer will sell Asia Trust and Investment Corp (亞洲信託), which has been under its control since February, separating its good and bad banking operations for an open auction slated to take place on Oct. 17, Wang said.

The CDIC announced the deal last week and hopes to attract potential buyers to complete their due diligence checks by the end of this month before placing bids at the open auction next month.

The insurer hopes that the deal will recover some cash, since the company’s Taipei buildings are worth an estimate NT$3.5 billion, which Wang said should be sufficient to cover the parent company’s losses.

Wang said the depository insurer had bailed out 55 domestic financial institutions, including 38 grass-roots credit units belonging to farmers’ and fishermen’s associations, eight credit cooperatives, six banks and two trust units, including Asia Trust, since 2001.

The CDIC has made efforts to enhance the banking sector’s internal risk control and management by imposing five differentiated rates of insurance premiums for domestic financial institutions in accordance with their exposure to failure risk.

Since the second half of last year, bank depositors are also insured and paid NT$1.5 million each, up from NT$1 million, if their banks fail.
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