The legislature has given initial approval for revisions to the Banking Law to allow banks to have longer periods for selling real estate and stocks deposited as collateral, the Ministry of Finance (MOF, 財政3? said yesterday.
The revisions also raise the ceiling for an individual's shareholding in a bank to 10 percent from the current 5 percent.
The revision passed by the legislature's Finance Committee late Monday allows banks to extend the period for selling off real estate and stock collateral to three years from the current two years, a ministry spokesman said.
Banks can apply to extend the period up to five years, relaxing their burden in handling collateral originating from overdue loans at a time when Taiwan's real estate market is still sluggish despite a recovering economy, the ministry official said.
Analysts said the revision would give more time for banks to handle overdue loan problems, and make them more willing to accept such collateral.
"The revision would help reduce banks' overdue loans -- surely a bullish factor for the financial sector," said Hsieh Chih-mao, deputy trading manager at Ting Kong Securities.
Taiwan domestic banks' overdue loan ratio rose to a record 5.08 percent at NT$669.4 billion (US$21.2 billion) at the end of September, due in part to the 921 earthquake which briefly idled industry, the central bank said.
While the Finance Committee also approved raising the ceiling of an individual's shareholding in a bank to 10 percent, it kept the limit on a whole conglomerate's holding in any single bank unchanged at 15 percent.
According to finance analysts, the move would help accelerate mergers of banks at a time when the finance ministry is encouraging such action to upgrade competitiveness. Taiwan's expected entry into the WTO next year is expected to bring in tough foreign competition.
Minister of Finance Paul Chiu (邱正雄) has promised to announce at least one major bank merger by the end of this month.
"The revision surely would help upgrade the willingness of bankers' to merge with other banks, but as the ceiling of a whole conglomerate's shareholding remains unchanged, the effect would not be that great," said Michael On, president of Beyond Asset Management.
On said in Taiwan, most investors prefer to hold bank shares through a conglomerate, not via individual holdings that might result in heavier tax burdens.
According to local media, the revised law will also make an additional NT$600 billion in loans available to the construction industry by easing lending restrictions.
The current law restricting loans to the construction industry to 20 percent of outstanding savings deposits and debentures issued has been amended to exclude total loans made to homebuyers from this limit, local media reported.
The revisions to the law still require final approval of a full session of the legislature, followed by enactment by the president.
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