The non-performing loan ratio of all of Taiwan's financial institutions reached 7.44 percent at the end of June, up from 6.84 percent at the end of March, according to Ministry of Finance's Bureau of Monetary Affairs.
The total amount of non-performing loans at the end of the second quarter stood at NT$1.05 trillion, exceeding the NT$1 trillion for the first time. Both figures are historic highs for the nation's banking sector.
Many industry analysts believe however that these figures are under-reported and the real figure could be significantly greater.
Minister of Finance Yen Ching-chang (
"But we could not expect to see the results within a short period of time," he said.
The Bureau of Monetary Affairs quietly disclosed the official statistics through its Web site yesterday.
The non-performing loan ratio of non-grass-roots banks, including trust companies, was 6.63 percent at the end of second quarter, an increase of 0.59 percentage point over the previous quarter.
The non-performing loan ratio of grass-roots financial institutions, including farmers' and fishermen's associations' credit departments and credit cooperatives, stood at 18.5 percent, an increase of 1.31 percentage points over the first quarter, according to the bureau.
As for foreign bank branches in Taiwan, their ratio dropped to 2.97 percent at the end of June, the lowest in the last seven quarters, the bureau said.
Last week the government disclosed that Taiwan's second-quarter GDP had declined 2.35 percent year-on-year, the economy's worst performance in decades. Market watchers said yesterday the recession-hit economy was the main reason for the deterioration of banks' asset quality and the increase in their bad loans.
Some analysts believe, however, that government figures may under-report the real situation in the banking sector.
For example Chen Chung-hsing (陳松興), the president of Taiwan Ratings (中華信評), the Taiwan arm of US credit ratings group Standard & Poor's, in June said that "problematic loans account for about 10 percent of the nation's loan portfolio, significantly higher than the official government estimate of 6 percent."
Chen also warned at the same time that the total ratio of problematic assets in the banking sector could rise to 12 percent by the end of this year.
Currently, total outstanding loans in Taiwan's banking sector stand at NT$14.37 trillion, and so a 10 percent non-performing loan ratio would mean that a whopping NT$1.43 trillion (US$41 billion) in loans have gone bad.
The main reason for the discrepancy between the government's official non-performing loan figures and those of Taiwan Ratings is that the government's official tally does not include loans that have been granted extensions -- often following government intervention -- and which are classified as "under surveillance."
The finance minister has admitted recently that if all loans currently under observation were included in the bad-loan ratio, the non-performing loan ratio could reach as high as 9 or 10 percent.
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