The Executive Yuan's decision on Wednesday to holds banks responsible for potentially bad housing mortgages stemming from last week's earthquake may result in a 10 to 15 percent drop in bank stocks, but no financial crisis is predicted, stock analysts and academics say.
The Ministry of Finance has said that people who live in hard-hit areas could delay principle payments on their housing mortgages for five years. The Executive Yuan has estimated that as a result of the grace period, banks could lose about NT$13 billion, although major banks put the figure at NT$50 billion.
Some fear the Executive Yuan's decision could eventually put too much of a strain on financial institutions. Too many bad loads may lead to a "financial crisis," where many banks fold, China Development Corporation (
But Jung Cho (
Cho said banks have the ability to absorb the potential losses.
"There is no need to worry about a financial crisis," she said, adding, the "economic base and productivity are relative intact, and therefore banks' inflows should stay relatively normal."
In addition, the earthquake will have a limited effect on productivity, and the loss is estimated to be equal to 0.1 percent GDP, according to TIER research.
Chiang noted that the government has a policy preventing major banks from collapsing.
He also said that the TAIEX reaching 5,422 points would be a good indicator of a possible "financial crisis" -- a scenario that he declared unlikely to occur.
"5,422 points was the lowest after the Asia crisis," Chiang said. "If the TAIEX goes lower then 5422, it means that stock holders see [Executive Yuan's] decision as harmful."
Chiang said that Taiwan Cooperative Bank (台灣合作金庫) and Land Bank of Taiwan (台灣土地銀行) were hardest-hit by the quake, but these institutions are not publicly traded.
Among listed banks, shares for the big three state-run banks (
"Banks that have closer relationship with the government, such as United World Chinese Commercial Bank (
In terms of how much the banks will actually lose, "It's too early to tell," he said.
Chiang said that the NT$15 billion dollars estimated by MOF is a huge amount, and he speculated that the MOF would develop more policies should bad housing loans become a problem for banks.
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