Vice Minister of Finance Susan Chang (
"It's the regulator's job to make sure that banks are setting up an effective risk-control model to reduce their lending risks," Chang told an international conference yesterday.
The Taiwan Management Institute (台灣管理學會) organized the event. The meet addressed financial-asset-quality issues.
Banks will have to adopt an external and internal rating-based approach and takes credit risk, market risk and operational risk into account when establishing the risk-control model, Chang said.
She also reiterated the Ministry of Finance's determination to consolidate the domestic banking sector through mergers and acquisitions and to reduce the nation's NPL ratio to 5 percent within two years. The ministry also aims to boost capital adequacy ratios to 8 percent.
As of June, Taiwan's NPLs at banks totaled NT$1.05 trillion, resulting in an NPL ratio of 7.48 percent. Another NT$473 billion in loans are under government observation since no interest has been paid on them for three months.
One pundit cautioned that if all banks write off NPLs at the same time, the value of those assets will be greatly slashed.
"A cautious approach should be taken. [The government] can never sacrifice economic stability for bad-loan disposal," said Richard Koo (
Koo said that if real-estate collateral was sold off too cheaply, property prices could be hurt, damaging the economy.
He also said that a credit crunch may also take place and seriously damage the nation's investment incentives if the government takes measures that are too drastic.
William Hunter, senior vice president of Federal Reserve Bank of Chicago, urged the government to resolve political risks associated with loan proceeds invested in China, saying "it's the nation's biggest problem."
With Taiwan's Financial Asset Securitization Law eneacted in July, Huber Neiss, chairman of Deutsche Bank AG (Asia), advocated the use of asset-backed securities to help resolve the nation's NPL problem.
The law is designed to reinvigorate domestic banks by allowing their asset-backed loans to be packaged into securities.
With securitization, local banks can transform their illiquid but revenue-producing assets into securities, which can then be traded on the capital markets. These include housing loans, vehicle loans, credit card receivables, trade receivables and other assets.
Minister of Finance Lee Yung-san (
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