Keen on stemming a potential run on grass-roots banks, finance officials said that at the opening of business today, more than NT$60 billion (US$1.73 billion) was at the ready to cover withdrawals.
"After the Ministry of Finance and the central bank took control of those problematic financial institutions, all deposits from the general public will be 100 percent protected," Minister of Finance Yen Chin-chang (顏慶章) said at a press conference late Saturday. Yen stressed that NT$60 billion was in place to diffuse the fears of panicky depositors.
The news follows Friday's raid on 36 grass-roots financial institutions by the Central Depository Insurance Co, which dispatched more than 200 staff to the institutions to supervise their operations. Fourteen of those had their management replaced with officials from the financial reconstruction fund, a mechanism similar to the Resolution Trust Corp in the US.
The move has been hailed as the first step by authorities to clean up debt-ridden grass-roots financial institutions.
Grass-roots financial bodies, long deemed the weakest in Taiwan's financial sector, are made up primarily of farmers' and fishermen's credit unions and cooperatives.
Yen, together with central bank Governor Perng Fai-nan (
"I hope all depositors would refrain from making unnecessary withdrawals since no deposits will be affected," Yen said.
Perng said the ceiling for deposit insurance -- normally up to NT$1 million from the Central Depository Insurance Co (
According to the finance ministry, the following eight banks will be involved in the takeovers of troubled institutions: the Bank of Taiwan (台灣銀行), Chang Hwa Commercial Bank (彰華商業銀行), Farmers Bank of China (中國農民銀行), First Commercial Bank (第一銀行), Hwa Nan Commercial Bank (華南銀行), Land Bank of Taiwan (土地銀行), Taiwan Cooperative Bank (合作金庫) and United World Chinese Commercial Bank (世華商銀).
Perng said the government would not let the healthy banks become burdened with the weight of sick counterparts.
"The move will not throw rotten apples in with the good apples," he said. "We will clean up the problematic assets from the rotten apples and then give them to the good apples," he said.
"This is a good beginning for the reshaping of the financial sector, which will proceed step by step," Perng said.
According to media reports, the total negative net worth of the 36 troubled institutions exceeds NT$30 billion. Topping the debt list is the credit department of the Taiwan Provincial Farmers' Association (台灣省農會), which is NT$5 billion in the red.
As to whether Friday's raid would affect the performance of the stock market today, Yen said: "Since the combined market share of the 36 financial institutions is less than 1 percent of the banking sector and the move is to improve the grass-roots financial institutions, it should be positive for the stock market's performance."
Overdue loan ratios at the grass-roots institutions is estimated at 17 percent, with bad loans totaling some NT$210 billion.
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