Rating agency says banks in dire straits

Some Taiwanese banks may collapse by the end of this year if the problems in the banking system are not resolved quickly, Chen Chung-hsing (陳松興), president of Taiwan Ratings Corp (中華信評), warned yesterday.

The Chinese language media quoted Chen, a former advisor to the Securities and Futures Commission under the Ministry of Finance, as saying that only half of Taiwanese banks qualify as investment grade.

Taiwan Ratings is the local branch of Standard & Poor's.

Chen estimated that problem 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 that the total ratio of problematic assets in the banking sector could rise to 12 percent by the end of this year, and he urged the government to amend laws to allow the securitization of assets and a more transparent system for corporate bankruptcies.

While bad debts are rising, the economic downturn has led to an increase in problem loans from the consumer banking divisions as borrowers appear unable or unwilling to make good on their credit card bills and mortgage payments.

Hardest hit by the recent squeeze in credit is the property sector, which was already hurting from the downturn in the property market itself, Chen said. Loan growth to the property sector has dropped by 12.37 percent.

Meanwhile, total loan growth from local banks to the service sector registered a negative growth rate of 10.12 percent, down by 51.75 percent from the total amount in 1999.

Chen made his estimate at a seminar organized by Legislator Lai Shyh-bao (賴士葆), who added his views that the property sector and the service sector are emerging as the two biggest losers in the present credit squeeze.

Chen believes that recent trends could lead to a condition called "moral hazard," where companies become less careful because they know bankers will lend to them no matter what the fiscal reality may be.

At the end of May, most of the largest banks saw their non-performing loans increase, despite continued efforts to write off their bad debts. The Land Bank of Taiwan (土地銀行) saw its overdue loan ratios increase by 0.54 percentage points to reach 6.61 percent, while the Taiwan Cooperative Bank (合作金庫) saw its ratio rise by 0.21 percentage points to 6.76 percent.

The Bank of Taiwan (台灣銀行), Taiwan's largest bank, however, saw its figures drop by nearly NT$300 million compared to the month earlier to reach NT$43.4 billion.