On April 23, former US vice president Dan Quayle, in his capacity as consultant to Cerberus Capital Management LP, met with Minister of Finance Lee Yung-san (李庸三) to discuss the US company's strong interest in taking over the Chung Shing Bank (中興銀行) and the Kaohsiung Business Bank (高雄區中小企業銀行). Quayle's many visits to Taiwan reflect the eagerness of many overseas capital management companies to get their piece of Taiwan's non-performing loan (NPL) pie.
His latest courtesy visit turned into hot news the next day, creating a stir in the Legislative Yuan, where several legislators rushed to claim that there must have been some kind of horse-trading going on. The reason why opposition lawmakers reacted in this way can be attributed to three psychological factors.
One, patriotism producing an anti-foreign reaction at the prospect of domestic banks being acquired by foreign capital. Two, the suspicion that profits will go to foreigners. Three, the fear of political interference, including booty-sharing.
The first two concerns are really just red herrings -- they are non-issues because Taiwan does not yet have an appropriate international perspective. The suspicion of political interference, on the other hand, is a product of the fantastic illusions so beloved by politicians in Taiwan about high-ranking US officials, which allow a former vice president to visit the country and be treated like a god.
Future sales of NPLs by the Ministry of Finance should be open and transparent so that there is no room for suspicions.
When Lee took up his post at the ministry, he faced two difficult issues. One was government debt, the other bank NPLs. Even though the ministry is responsible for issuing public debt, it does not have any budget-creating powers and is unable to control government expenditure. Since the ministry has no control over expenditure and can only press on with its main task of collecting taxes, it is totally powerless as far as the work of decreasing budget deficits is concerned and can only hope for an increase in annual revenues.
Lee has a great deal of experience when it comes to putting financial institutions in order. He also has a strong sense of mission. He has promised that he will cut the NPL ratio to below 8 percent within two years and that in a short period of time he will raise the quality of Taiwan's financial institutions.
Since the Asian financial crisis, countries in the region have reorganized their financial institutions. South Korea may well have achieved the best results. In 1999, the Bank of Korea's NPL ratio was 12.9 percent. In two short years, it has actually fallen to 3.8 percent. South Korea has invested the equivalent of NT$4 trillion in the handling of NPL. Of this, the equivalent of NT$1 trillion comprises loans from the IMF and the World Bank, while the remainder consists of public assets in the form of tax revenue.
In Taiwan, bad loans total approximately NT$1 trillion. Looking at how much South Korea needed to handle its problems, Taiwan should prepare to spend at least NT$1.2 trillion. The finance ministry wants to extend the business tax exemption for financial services to 10 years. Using this as a basis for an estimate, insurance premiums for the Financial Restructuring Fund (
If we want to save poorly managed banks when our national finances are in dire straits, it will be difficult for the government to provide the full amount through budget allocations. The ability to bringing in capital management companies from abroad is an important financial weapon for handling NPL problem.
Lawmaker claims that the finance ministry has been engaging in horse-trading are not conducive to attracting foreign capital and will not help the problem.
Improving the quality of financial institutions and speeding up the handling of bank NPLs are important issues. Apart from government capital subsidies, financial resources will have to come either from the general public's savings or from foreign capital. This is the first time that Taiwan has dealt with bank NPLs. Failure will have far-reaching effects for the financial industry. It behoves people outside of government to offer encouragement and there is no need for suspicions or slander.
The finance ministry should also be careful in its handling of the issue. Transparency and openness are the only ways to avoid suspicion.
If we take Chung Shing Bank as an example, the reason why no bids were submitted in an earlier public tender was that everyone thought the estimated deficit of NT$30 billion was too low. If foreign companies are allowed to take over the bank on the basis of a new estimate of NT$60 billion, the difference from the original estimate will be too great and lead to suspicions of horse-trading. If a new estimate of NT$40 billion or NT$50 billion falls within a scope acceptable to the finance ministry and a second public tender is issued, I am sure competing bids will follow automatically as long as there are profits to be had. At the same time, a public tender will avoid all discussion of horse-trading.
Legislator Shen Fu-hsiung is director of the DPP's policy committee.
Translated by Perry Svensson
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