Finance minister cites loan repayment rate

Finance Minister Yen Ching-chang (顏慶章) said yesterday that 60 percent of loan extension cases from 1998 have been paying interest.

Yen made the remark yesterday at the Legislative Yuan while fielding questions by KMT lawmaker Chu Li-luan (朱立倫) about two of Taiwan's debt-ridden business groups asking creditor banks to lower the portion of interest payments to be paid out in cash.

The two business groups -- the Hung Kuo Group (宏國集團) and the Tuntex Group (東帝士集團) -- with accumulated debts of about NT$110 billion, have been suffering financial difficulties for several years and were allowed to defer their loan payments and cut the interest rates on their loans after reaching a debt restructuring plan with their respective credit banks.

Originally, creditor banks of the two groups agreed to lower the interest rates on loans to 6 percent from 8 percent and allow both groups to pay out the interest payments half in cash and another half in credit.

This time, however, the two groups have asked for a further cut in the portion of cash interest payments to 1.5 percent.

But since Tuntex had actually stopped the interest payments beginning in November of last year, and since default interest payments of up to six months will turn into part of the banking sector's total overdue loans based on current regulations, lawmakers are worried that loans extended to Tuntex are likely to become overdue if the group continues to default on payments next month.

"Both Tuntex and Hung Kuo have not paid their bank interest for four months," said Chu.

"If the NT$110 billion overdue loans of the two groups being put into the overdue loan ratio of the entire banking industry, the nation's overdue loan ratio would rise 0.7 to 0.8 of a percentage point."

"As the deadline of loan extension will expire on April 14 again, could these loans be extended further?," Chu asked.

Yen declined to comment on the two individual debt rollovers. However, he stressed that his ministry has been closely watching the situation.

"A number of industry leaders have been asking that Premier Chang Chung-hsiung (張俊雄) extend their loans further," said Yen.

"Since the second half of 1998, 60 percent of companies who had requested loan extensions before have paid their interest payments regularly," Yen said.

Nonetheless, the finance minister was unpleased that local media have been focusing on the continued rise on the overdue loan ratio.

"The main reason for the rise of the overdue loan ratio is because the economy has not recovered from the recession. ... Compared to the 20 or 30 percent overdue loan ratios in our neighboring countries, the quality of bank assets in Taiwan is still under control," he said.

Yen said he is confident in Taiwan's future financial reform, hinting that the Financial Holding Company Law is likely to be passed by the legislature within the next two months.

Another major financial reform act, the Financial Institution Merger Law, was passed at the end of last year.