Tue, Oct 30, 2001 page17

• Banks clamor to be taken over

  HAPPY TO FAIL The Taiwan Development Investment Trust and the Medium Business Bank of Kaohsiung have volunteered to be absorbed by the government

  • By Stanley Chou / STAFF REPORTER
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  Last week's announcement by the Financial Reconstruction Fund (金融重建基金) that it would take over the losses of the ailing Chung Shing Commercial Bank (中興銀行) has attracted a number of problematic financial institutions, interested in also being taken over, Chinese-language media reported over the weekend.

  Banks looking to get on the bailout bandwagon include the Taiwan Development Investment Trust Co (台開信託公司) and the Medium Business Bank of Kaohsiung District (高雄中小企銀), the report said.

  Taiwan Development informed the Central Depository Insurance Co (中央存保) recently that it wanted to be taken over by the reconstruction fund.

  The Medium Business Bank, with a non-performing loan ratio of 30 percent, is also asking for help, the report said. The bank's chairman, Wang shin-fu (王信孚), was quoted in the report as saying that the bank's net worth would turn negative by the end of this month.

  The NT$140 billion financial reconstruction fund is designed to spur consolidation of the financial industry, but the government will only buy bad loans if management agrees to surrender control in government-instigated takeovers.

  When troubled banks clamor to be taken over, pundits say something is wrong.

  "With only NT$140 billion in the budget, it is questionable whether the financial reconstruction fund should spend its money on Chung Shing Bank," said Lee Tong-how (李桐豪), a professor of finance at National Chengchi University.

  In late summer, the government seized control of 36 troubled credit cooperatives and spent as much as NT$80 billion on bad loans to rescue the lenders.

  Meanwhile, one pundit questioned the entire takeover process.

  "When the Central Depository Insurance Co took control of Chung Shing Bank's management more than a year ago, the bank's net worth was still positive. I would like to ask the Central Depository why Chung Shing Bank's net worth turned negative over the past year," said Chou Tien-chen (周添城), an economics professor at National Taipei University, who is also a member of the financial reconstruction fund committee.

  Chung Shing Bank was taken over last year following a loan scandal.

  "The 36 grass-roots financial institutions were closely monitored by the administration for about six months before the takeover. Those directors and managers who were involved with corruption should be prosecuted by the proper authorities," Chou said. "Its a decade-old problem and the upcoming elections have only complicated the process."

  Another industry watcher said the government can't do the job alone.

  "The banking sector should make greater efforts in improving their own financial situation," said Yang Ya-hwei (楊雅惠), a research fellow at Chunghwa Institute for Economic Research. "The government should consider some measures to assist the banking industry in writing off its non-performing loan, such as tax regulation and accounting principles."

  For those that don't play by the rules, the punishment should be clear, he said.

  "In order to avoid `moral hazards,' the administration should punish the directors and managers of banks that need to be taken over by the reconstruction fund," Yang said.

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