A visiting finance professor from the US said yesterday that the government's goal of lowering the nation's non-performing-loan (NPL) ratio to 5 percent with the next two years is not sufficient for restoring the financial sector to good health.
"Five percent is still high. It has to be reduced to at least under 2 or 3 percent in order to keep the nation's financial sector sustainable," said Edward Altman, vice director of the Stern School of Business at New York University. He is attending the two-day 2002 Financial Summit Workshop in Taipei.
Altman, once a Nobel candidate in economics, urged the government to take a proactive approach to help clean up the nation's bad loans while also initiating reliable credit-risk controls to prevent the ongoing proliferation of NPLs.
Altman also urged the government to acknowledge the problem's seriousness, saying "the actual NPLs ratio is usually higher than the official figure and, in Taiwan's case, it could be up to somewhere between 15 and 20 percent."
In his opening remarks at the seminar yesterday, Minister of Finance Lee Yung-san (李庸三) said that the nation's NPL ratio in the second quarter was 8.28 percent, excluding loans under observation.
A delay in the clean-up of the nation's NPL problem will "cause a significant credit crunch" that will hinder the nation's long-term economic growth, Altman said.
"A credit crunch happens when all banks stop lending at the same time and even companies with good credit don't get credit," he said. This has already happened at some banks in Taiwan already, Altman said.
The government should pressure financial institutions to take a disciplined approach by restricting credit on high-risk ventures, while using an objective risk-management model to assess borrowers' balance sheets, cash flow, personal guarantee and profitability before lending.
The workshop's participants drafted a formal proposal, petitioning President Chen Shui-bian (陳水扁) and his administration to take action to quickly restore the financial sector's health. The petition also requested the legislature's support by proposing that the Financial Restructuring Fund (金融重建基金) be raised to NT$900 billion. The fund would be used to lower the nation's NPL ratio to 5 percent and raise banks' capital-adequacy ratio to 8 percent within two years, the proposal stated.
Altman and Huang Da-yeh (
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