The Ministry of Finance may be planning to ease the existing 7 percent daily limit on stock fluctuations to 10 percent as part of its efforts to further liberalize financial markets following, it was reported yesterday.
"Following Taiwan's entry into the WTO from next January, the Ministry of Finance will adopt international practices in its regulations. The ministry is already planning to expand the range of daily stock-price movements," Minister of Finance Yen Ching-chang (
He declined to reveal, however, when the ministry would make the changes.
"The measure will be promulgated after the stock market stabilizes," Yen said.
Although Yen did not specify how much the daily price movement would be expanded, recent proposals by the Securities and Futures Commission suggest initially expanding the limit to 10 percent, and then to 15 percent.
"Since Taiwan is going to be a member of the WTO next year, financial markets should be further liberalized," Yen said. "Interaction with international markets will rise, and the degree of internationalization should also be increased."
He said that the existing limits fail to reflect the speed of data transmission across international markets and that rigid trading limits were sometimes to blame for speculation.
The present margin trading system was imposed as part of a range of measures designed to help prevent plummeting of share prices despite criticism that the market mechanism was being destroyed. To help prop-up share prices, the finance ministry had also doubled the deposit ratios for short-selling from 60 percent to 120 percent. The ratio is now at 90 percent.
Yen also agreed to use universal non-performing loan (NPL) standards to measure the health of Taiwan's banks as he pledged to further increase transparency in the domestic banking system.
Taiwan's NPL ratio for domestic banks hit a record of 7.79 percent at the end of September, compared to 5.26 percent a year ago, the central bank said.
Total non-performing loans stood at NT$1.12 trillion (US$34.4 billion) against loans outstanding of NT$14.38 trillion at the end of September, it said.
"The non-performing loan ratio of domestic banking sector was 3.93 percent at the end of 1997. It has since increased to 7.79 percent by the end of September this year. Although the asset quality of the banking sector is within a reasonable range, the finance ministry will continue to work on improving the sector's asset quality," Yen said.
"There are three major directions set by the finance ministry for financial reforms. First is to bring the financial sector up to international standards. Second is to provide good business environment for outstanding international financial institutions.
Third is to force problematic financial institutions to remove themselves from the financial market," Yen said.
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