Legislators yesterday approved the injection of NT$110 billion of fresh capital into a bank bailout fund in support of the government's efforts to revamp the financial sector, which is plagued by bad loans.
"The approval will mean debt-ridden financial institutions can be fixed rapidly," said Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠), who played a crucial role in pushing through the amendments to the Resolution Trust Committee Fund Regulatory Provisions (金融重建基金設置及管理條例).
The passage will give sufficient capital for the committee to save Chung Shing Bank (
The NT$110 billion capital will come from a 2 percent business tax on financial institutions that will be extended to 2010, based on the new rule.
The committee, however, will not cover losses stemming from non-depository operations after the new rule takes effect on July 10. It will, however, cover NT$7 billion of losses from non-depository operations that were incurred prior to the enactment of the rules. This was a major hurdle to the approval of the additional cash.
The four-year-old committee is set to disband early next month. At that time another government agency, the Central Depositary Insurance Corp (CDIC,
The government set up the committee in 2001 with initial capital of NT$140 billion to help local lenders write off over NT$90 billion of bad loans as part of a broader plan to improve the nation's financial sector.
"But, the bailout fund is not a cure-all. The government needs to pay attention to some fundamental problems," said Norman Yin (
Most financial institutions have not taken risk management seriously, which is crucial to preventing bad loans from piling up, even though local banks have significantly reduced bad debts, Yin said.
"The negligence has made Taiwan's financial sector fragile and vulnerable to an economic slowdown. An economic recession could cause a collapse of Taiwan's financial sector," Yin said.
On top of that, Yin doubted the CDIC's ability to fix problematic lenders in light of its limited funds, of around NT$25 billion.
The FSC should tighten oversight instead of pinning its hopes for writing off bad debt on mergers and acquisitions, Yin said.
To strengthen its oversight, the commission said earlier last month that it would force local banks with capital adequacy ratios below 2 percent to come up a recapitalization plan within three months.
Capital adequacy ratios are used to gauge a bank's financial situation,
But, both Lee and Yin said the measure is not sufficient to prevent more banks from going bankrupt, which will drag down the financial sector.
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