Standard and Poor's, a US ratings agency, criticized yesterday the government's decision to roll over loans to troubled companies, saying that it could delay the resolution of the problems in the banking sector.
The ratings agency said that the cost of the government's recent decision to rescue the banking sector may exceed the benefits. Banks will also have to bear part of the credit risk for the state-directed lending, while some companies are now threatening banks "to seek sanctions" if they fail to abide by the government's new policy.
"Extending new loans to weak borrowers could further slow the process of resolving Taiwan's banking problems," said the statement released by S&P's Hong Kong office.
While the measures may boost sluggish loan growth and ease the credit crunch at traditional industries, they may endanger the health of domestic banks, the statement said.
The new policy, aimed at boosting confidence in the financial markets, includes rescue measures such as NT$320 billion (US$10 billion) in loans for vacant housing units, NT$450 billion in loans to traditional industries and loan rollovers for troubled corporate borrowers.
The report comes a day after Taiwan Ratings (台灣信用評等), Standard & Poor's Taiwan branch office, said on Monday that impaired assets, or problem loans, in Taiwan stood at 10 percent of total assets, or NT$1.3 trillion.
Minister of Finance Yen Ching-chang (
Trouble in the banking sector has now jumped to the center of political debate following last week's release of data showing record high overdue loans for September. In addition, a controversial article in The Economist magazine, which suggested a liquidity crisis in the banking system could take place before the Lunar New Year, has caused concern.
Analysts, however, see no liquidity crisis in the banking system in the near future, although they acknowledge the gravity of the problems in the system.
"Any central bank in its right mind would release money during the Chinese New Year," said Anthony Lok, a regional bank analyst with Nomura International in Hong Kong.
Taiwan has no looming external shock that would send the banking system into trouble as it did in South Korea, but looks more akin to Japan in that problems could become a long-term burden, analysts say.
Three factors usually seen as a precursor for a banking crisis -- a dramatic slowdown in economic growth, a sharp increase in interest rates and exchange rate volatility -- are all currently being seen in Taiwan, experts say.
Standard & Poor's, however, said while Taiwan's banking sector difficulties are not likely to approach the crisis levels experienced by other Asian banking systems, political uncertainty could put pressure on smaller banks with weak capitalization.
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