Kind words help prevent bank run

Words of support from the Ministry of Finance (財政部) yesterday gave depositors at ChinFon Commercial Bank (慶豐銀行) a boost of confidence, helping to stave off a possible bank run.

Local media yesterday said that ChinFon Group (慶豐集團), the bank's parent company, was having financial difficulties.

Ministry officials were worried that depositors may decide to withdraw their savings from the bank, taking the sins of the father as the sins of the son.

But according to the ministry, a short-term cash flow problem at ChinFon Group is limited to its trading, automotive and semiconductor units -- not the bank.

"Chin Fong Commercial Bank's chairman is a professional manager," said Chen Chung (陳沖), deputy finance minister, in a press conference yesterday.

"ChinFon Bank's total deposits are approximately NT$150 billion and total outstanding loans are about NT$110 billion. The operation of the bank is very good," Chen said.

"Furthermore, total loans that ChinFon Group received from ChinFon Bank is only about 0.8 percent of the bank's outstanding loans -- less than 1 percent. And all the loans are 100 percent collateralized loans."

News reports yesterday said that the ministry had called together 35 of ChinFon's creditors on Wednesday night for a "confidential meeting," requesting them to not withdraw their credit lines and to further extend short-term loans.

The creditors reportedly pro-mised not to withdraw ChinFon Group's line of credit, marking the second time this year the finance ministry has successfully intervened on the behalf of an ailing industrial group.

Unlike earlier coverage of problems at financial institutions such as the Bank of Overseas Chinese (華僑銀行), market watchers said that reports about the ChinFon's troubles has been more conservative.

Part of the reason could be a NT$10 billion lawsuit against the Commercial Times and its parent company, China Times Group.

The suit alleges the Commercial Times libeled the Bank of Overseas Chinese in its coverage of the financial institution.

Regardless, coverage of the ChinFon Group's financial woes didn't trigger a run at its banking unit, though some reports said depositors withdrew more than NT$1 million yesterday.

The ministry's strong words of support likely had the affect of calming depositors' worries.

"Since ChinFon Group accounts for less than 1 percent of outstanding loans at ChinFon Bank, it stands to reason that the group has no intention of draining money from the bank," said Minister of Finance Shea Jia-dong (許嘉棟).

"Therefore I urge that the ChinFon Group and ChinFon Bank be treated separately."

According to Chen Gau-guang (陳高光), ChinFon Bank's vice president, the overdue loan ratio of the bank is currently at 11 percent.

Chen said that after deducting debts from Tsay Chern-nan (蔡辰男) -- chairman of Cathay Trust Company (國泰信託), ChinFon Bank's previous name -- the bank's overdue loan ratio is somewhere between 6.5 percent and 7 percent.

That's "not much different from other state-controlled commercial banks," Chen said.

ChinFon Group took over Cathay Trust Company in early 1990s, later changing its name to ChinFon Commercial Bank.

Last year ChinFon Bank reported a pretax loss of NT$1.96 billion (US$64 million) according to ministry records.