Bad banks `sucking blood' from government's coffers

Following data released this week showing that the nation's most troubled banks were getting worse, an industry watcher yesterday urged the government to take action quickly so that they do not become an even greater burden on taxpayers.

"They have become vampire banks, sucking the blood from the government's [coffers]," said Chen Chung-hsing (陳松興), president and CEO of Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor's.

The latest figures from the central bank, released on Wednesday, show that the non-performing loan (NPL) ratio at the end of December at six of the nation's 10 worst-performing banks had risen by between 3 and 10 percentage points from the same period last year.

Chen urged the legislature to hasten the approval of the government's NT$908.6 billion Financial Restructuring Fund (金融重建基金) to help restore the health of the nation's banking sector.

"The longer the plan is delayed, the more losses the taxpayer will have to cover," Chen said.

At the worst financial institutions, the Ministry of Finance's efforts to reduce bad loans appear to have failed.

Banks where the NPL ratio rose during the past two years include Chung Shing Commercial Bank (中興銀行), from 57.34 percent to 64.53 percent; Kaohsiung Business Bank (高雄企銀), from 33.86 percent to 43.50 percent, and Hualien Business Bank (花蓮企銀), from 27.69 percent to 27.87 percent.

The 10 most-troubled banks had an average NPL ratio of 25.3 percent, up from 24.4 percent in 2001. The slow economic recovery, however, continues to strain banks' ability to generate earnings and deal with their bad loans.

Public funding will be needed to support bank lending and help them alleviate their financial problems, Paul Grela, director of Fitch Ratings' financial institutions in Asia, said yesterday.

After writing off a record NT$410 billion in bad loans, banks reported an average 8.85 percent NPL ratio last year. According to Fitch, the figure may actually be between 12 percent and 15 percent, while Chen estimates the figure to be between 10 percent and 12 percent.

Opposition parties have been accused of stalling the passage of measures to deal with the NPL problem in an attempt to undermine President Chen Shui-bian's (陳水扁) re-election bid. Chen's term will finish in May next year.

But PFP Legislator Norman Yin (殷乃平) yesterday dismissed the accusation, saying that the plan was still under review because the ministry had failed to come up with a workable and transparent monitoring mechanism to oversee the fund's use.

Rising defaults on consumer debt, which accounts for 47 percent of all bad loans, may further deteriorate the nation's bad-loan problem this year, Yin said.