Minister of Finance Lin Chuan (
"The nation's non-performing loan [NPL] ratio has dropped from some 8 percent two years ago to about 4 percent today, which greatly diminishes the likelihood of a financial crisis as the report stated," Lin told lawmakers yesterday.
In its annual Asian Development Outlook published on Wednesday, the Manila-based ADB warned that India, Pakistan and Taiwan are at risk of banking sector crises unless the authorities push through reforms of the industry.
Lin admitted that the nation's financial reforms have to be accelerated in order to meet market challenges following the opening-up of the banking sector.
The central bank also released a statement yesterday, saying that "it is unlikely that Taiwan will face any financial crisis."
The report drafted by Asian Development Bank Institute researcher Heather Montgomery said the three countries "may face one if the authorities are unable to forestall a crisis using preemptive financial reforms."
The pressure of globalization and ensuing liberalization has exposed the shortcomings of the financial sectors in the three countries, including "low capitalization ratios, limited expertise in risk management, rising bad loans and inadequate banking supervision and regulation," the report said, adding that their NPL ratios are also reaching all-time highs.
The central bank said that Montgomery has cited outdated statistical data, which led to an erroneous conclusion that the NPL ratio had reached a record high.
Excluding loans that are under observation, the central bank's statement said that the nation's NPL ratio has declined to from 8.04 percent in March 2000 to 4.33 percent at the end of last year.
As of last month, the bad-loan ratio further dropped to 4.14 percent -- the lowest in six years.
However, if loans under observation are included in accordance with international accounting standards, the NPL ratio leveled at 6.08 percent at the end of last year. But that is still a decline from 11.26 percent at the end of 2001.
In contrast to the ADB's warning, Lehman Brothers Holdings Inc yesterday said in a report that its Damocles index for Taiwan -- a patented financial-crisis indicator -- hits the safe level of 24 points, far below the red-line level of 75 points.
The international investment bank said that Taiwan is rich in economic advantages, including US$224 billion in foreign reserves and a low foreign debt.
However, it expressed concern that the nation's post-election political uncertainty may lead to a deterioration of cross-strait relations and stymie its economic prospects.
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