Mon, Oct 14, 2002 page8

• Editorial: Persecute the rogue bankers

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  On this page a week ago Professor Chang Ming-chung (張明宗) of National Central University made a persuasive argument to let deeply indebted banks go bankrupt. Chang was particularly incensed by the case of Chung Shing Bank which is now believed to have a negative net worth, but the arguments he put forward are capable of much wider application in Taiwan. First up of course would be the huge number of farmers' and fishermen's associations the credit departments of which are insolvent. It is good to see the government proposing action on what has been a running sore in Taiwan's financial system for nearly a decade, and alarming to see the strength of the opposition to the governments restructuring plans. Of course one can expect the KMT and the PFP to be against these plans since these parties' local factions have used the "second tier" banking institutions as their personal piggy banks for years, resulting in their massive indebtedness now. It's exasperating to hear the KMT call the government's proposed reforms "politically motivated." If trying to stop the politically well-connected -- those who can buy enough votes and exert enough influence to gain control of an agricultural associations or a credit co-op -- from looting ordinary people's savings is politically motivated then so be it. What is distressing is that even the TSU, which we mistakenly thought of as reformist, is criticizing the government's clean-up plans, despite the fact that it readily admits that many of the institutions are corrupt.

  Ah yes, corruption. Isn't that a crime, hereabouts? If so why hasn't any one been prosecuted? This is one of the most interesting questions about the whole non-performing loan scandal. Here we are with bad loans amounting to US$28 billion. That's about 10 percent of GDP, by the way. Central-bank chief Perng Fai-nan (彭淮南) thinks that US$16 billion of this might be recoverable. That leaves a bill of US$12 billion to be picked up by the taxpayer. That's about US$520 or NT$18,000 for every man woman and child in the nation. How did this come about? Basically through lending that was bad, shading into corrupt. A great deal of bad lending was under-collateralized, despite there being remarkably strict rules -- too strict for many small businesses, incidentally -- on collateral provision. Why were the rules bent? Cronyism, political influence and straightforward corruption. Loans were made to friends with no questions asked, politicians used their influence over the budget of state-owned lenders to muscle loans for themselves and their cronies, in some banks the management lent money to itself to play the stockmarket, in others it was simply bribed to break the rules on collateralization ... there is hardly a rule in the book that has not been broken many times over. What this amounts to is the looting of Taiwan's banks, something the KMT government did absolutely nothing to stop while it was happening and the KMT party actively abetted. And guess who pays the bill?

  The whole bad-loan problem has so far been seen as a financial or economic problem -- how can one boost an economy short of liquidity because banks are on their uppers? But it is about time it was also seen as a criminal problem as well. Any bank at some time makes a bad loan, this can be accepted. What is unacceptable is that there are laws in place to limit exposure to risk and these laws have been violated many many times apparently with impunity. It is about time this impunity was ended, even if it means breach of trust actions filling the courts for the next five years. Why should rogue bankers get away with stealing NT$18,000 from each and every one of us?
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