Though measures are needed to strengthen the nation's banking sector, Taiwan will not face a Japanese-style financial crisis, government officials and pundits said yesterday.
"After implementing financial reforms and passing six finance-related bills, Taiwan will never experience a financial crisis," PFP Legislator Christine Liu (劉憶如) said yesterday.
Liu made the comment as a rebuttal of a report delivered by Heather Montgomery, a researcher with Asian Development Bank Institute, who concluded that Taiwan will soon be facing a banking crisis similar in type and scale to that of Japan in 1997.
Montgomery's report has created a debate in the nation's financial circles.
Liu argued that financial data cited in Montgomery's study is outdated and 15 financial indicators that Montgomery used in her research model have greatly improved in the past two years.
"Unlike other Asian countries, Taiwan doesn't owe any foreign debt and capital is still abundant in the private sector," Liu added.
She also gave her approval to the Ministry of Finance's use of Financial Restructuring Fund (
Sharing a similar view, Jonathan Anderson, executive director of Goldman Sachs LLC's Asia-Pacific Investment Research also said that "the banking system is in trouble [in Taiwan], but a banking crisis is not in the making."
"Good private banks with good management will be able to resolve [problems] on their own, while the state-controlled banks will, on the whole, need to wait for a government restructuring and recapitalization [initiative] to return to full health," Anderson told the Taipei Times.
Anderson said the nation's ratio of non-performing loans (NPLs) is much higher than the official figure of 12 percent.
"Adopting a bottom-up approach by using cash flow data of listed companies, we end up with a potential NPL ratio of 17.5 percent," he said.
Although the major banks have both a declining return on assets and return of equity, Anderson concluded that the nation's high reserves, strong current account surpluses and banks' low foreign currency exposure left no room for a foreign exchange crisis.
In addition, the nation's high state ownership, an implicit policy of no bank failures and high savings flows into domestic assets meant that runs on the banking system were limited to a few isolated cases of gross mismanagement, Anderson added.
Finance Minister Lee Yung-san (
Actually, the Cabinet has decided to enact the "Prompt Corrective Action" -- a warning system that allows the finance ministry to deal with banks, whose capital adequacy ratio falls below 2 or 3 percent when the bank's assets still have positive net worth, according to Hsu Chen-ming (許振明), an economist at the National Taiwan University.
Chen Po-chih (
But he did point out that a decline of lending by banks will have a long-term impact on the economy.
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