The Ministry of Finance is mulling a new plan to "optimize" the use of the Financial Restructuring Fund (
The ministry may use the fund -- similar to the US' Resolution Trust Fund -- to act as a private asset management company (AMCs) to buy off the assets of failing banks, said Tsai Ching-nain (
"After taking over bank shares, the government can further decide the collapsed bank's future by consolidating it through mergers and acquisitions or shutting it down while re-selling its underlying collateral," Tsai said.
According to a preliminary plan, the ministry will use the financial restructuring fund to absorb a bank's bad loans if the bank's non-performing loan (NPL) ratio is too high or its capital adequacy ratio is too low, for example. The ministry is currently working on setting up such a benchmark, Tsai said.
According to existing regulations, banks are required to have a capital adequacy ratio of over 8 percent, Tsai said.
Minister of Finance Lee Yung-san (
Last week, Premier Yu Shyi-kun said the nation is facing a financial crisis because the national debt now exceeds NT$3 trillion (US$90.9 billion). But when asked whether the ministry would work to beef up the NT$140 billion fund in order to facilitate its new plan, Tsai's answers seemed overly-simplistic.
"No government budget may be needed, since capital can be raised through the issuance of government bonds," he replied.
Despite Tsai's optimism, local Chinese-language newspapers have speculated recently that the ministry has proposed raising the fund to NT$600 billion, pending legislative approval.
With the nation's bad loans continuing to increase, Minister Lee has previously told legislators that the fund needs to be raised to NT$600 billion, to help clean up the banking sector.
Chen Chung-hsing (陳松興), president and CEO of the Taiwan Ratings Corp (中華信評), a local partner of Standard & Poor's Ratings Services, on Monday said that the government may need as much as NT$950 billion to clean up the nation's NT$1.68 trillion in NPLs.
Chen said that Taiwan's ratio of NPLs is likely to have climbed above 15 percent and NT$950 billion -- 10 percent of the nation's NT$9.5 trillion gross domestic product (GDP) -- is a minimum to tackle bad loans.
Citing reports from the World Bank, Chen said that it usually costs 12.8 percent of a nation's GDP to help write off bad loans and "the more it is delayed, the costlier it will be."
Rebutting Chen's view, the ministry's Tsai said that the nation's ratio of non-performing loans currently stands at 12.3 percent, in accordance with international accounting standards.
And since last December, sour loans under observation have declined by NT$54 billion as of the end of May, he said, adding that the upcoming economic recovery may prop up the nation's property market and revive the nation's economic outlook.
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