The Ministry of Finance is drafting plans to tighten credit regulations in an effort to head off a financial crisis that could result from a weakening economy, a ministry official said yesterday.
Market sources said the new policy -- although reasonable from the standpoint of risk management -- will make borrowing more difficult for local companies, especially traditional industries.
According to an official at the ministry's Bureau of Monetary Affairs, the new policy will impose a ceiling on the amount of funds a bank can extend to a corporate group.
"Banks will be exposed to a greater risk of loan default when the economy is heading downward, so tighter regulation is needed," an executive at a major bank said.
Banks will be given a grace period for adjustments if any of their loan packages exceed the ceiling, which the official would not disclose. The adjustment period will be decided depending on the size of each loan package, she added.
Banks that fail to adjust their loan limits within the grace period will be fined between NT$2 million and NT$10 million, the official said.
"I don't think the regulation will contradict the government's policy to ask banks not to tighten loans to companies. We are not asking banks to cut their loans, but to strengthen their risk management instead," she said.
"We are trying to make the credit policy more thorough," she added.
Currently, the government only regulates bank loans extended to individuals or a group of related individuals.
According to regulations, a bank is not allowed to lend more than 40 percent of its net worth of the previous fiscal year to a single customer.
In 1998, Chung Shing Bank (
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