Harsh words for slacking banks

The Ministry of Finance (財政部) has formally chastised more than 20 of the nation's 52 domestic banks for failing to improve their overdue loan ratios.

Most of the banks received formal letters of warning earlier this week for failing to lower overdue loan (ODL) ratios to pre-April levels before the end of September.

The ministry had also requested that banks lower their ODL ratios to below 2.5 percent within the next four years.

An official from the finance ministry's Bureau of Monetary Affairs pointed out that a number of large banks (大型行庫), new commercial banks and most medium-sized business banks (中小企銀) had not met targets set by the ministry in June. The ministry wants these banks to lower down their ODL ratios as soon as possible.

Complicating the picture though is the 921 earthquake. A number of banks have asked the ministry to relax its mandate because the quake caused mortgage loan losses, some bank executives said.

But rather than modify its original timetable, the ministry sent out formal letters of warning to the banks concerned.

However, the letters, which repeated the ministry's request that the banks improve their ODL ratios, represented little more than a slap on the hand. The letters mentioned no substantive punishments if the banks failed to comply.

When the finance ministry cut the business tax for financial institutions in July from 5 percent to 2 percent, it also ruled that the billions of dollars saved must be set aside to speed up the write-off of bad loans. In addition, it announced rules requiring domestic banks cut their ODL ratios by July 2003 to below 2.5 percent, an international standard.

But up to now, a large number of the domestic banks have failed to lower their ODL ratios; among them are some new commercial banks.

According to the latest numbers disclosed by the sixteen new commercial banks, at the end of November, six still had ODL ratios higher than their April levels.

Da An Commercial Bank (大安商銀) had the biggest ODL increase, with the ratio rising 1.62 percentage points to 4.08 percent. Next was Chinese Bank's (中華商銀) 0.61 percentage point increase to 3.59 percent, followed by Far Eastern International Bank's (遠東國際商銀) 0.53 percentage point increase to 3.73 percent.

However, the average ODL ratios for the new commercial banks as a whole have improved. Their average ODL ratio in November stood at 3.81 percent, a 0.15 percentage point drop from April's average of 3.96 percent.

Despite this seemingly promising trend, only two of the 16 new commercial banks, Bank SinoPac (華信商銀) and Fubon Commercial Bank (富邦商銀), currently have ODL ratios lower than the 2.5 percent benchmark.

That leaves the other 14 banks with three-and-a-half years to lower their ODL ratios to the required level. This may appear like a reasonable time period, but in the meantime, it means these banks will have to set aside a part of their earnings as reserves for bad debt write-offs, which will consequently affect the profitability of these banks.

Of the 16 new commercial banks, Pan Asia Bank (泛亞商銀) had the distinction of having the highest ODL ratio,which stood at 8.34 percent at the end of last month. However, that represented an improvement over April's 10.2 percent figure.

Baodao Commercial Bank (寶島商銀) had the second highest ODL ratio, with a figure of 6.35 percent.