Taiwan's leading credit rating agency warned yesterday of looming corporate defaults during the middle of this year and urged the government to propose measures to stave off a potential financial crisis.
Chen Chung-hsing (陳松興), president of Taiwan Ratings Corp (中華信評), said yesterday the banking system may come under heavy pressure mid-year, thanks to a total of NT$116 billion in corporate bonds due between May and July.
Local firms, he said, have meanwhile come under serious financing pressure as rising bad loan ratios have forced banks to turn highly selective in their lending -- just when the companies are most cash-strapped.
"Second-tier firms and traditional industry firms are finding it extremely difficult to raise money," Chen said at a financial seminar yesterday. "Default risk may once again hit bad loans in the banking system."
Chen said NT$92.45 billion in corporate bonds and NT$23.7 billion in convertible bonds are due within that period.
Two other sources of funding have also become less functional as the stock market is currently lackluster while the bond market remains nascent, he said.
Worse still, only 20 companies with the agency's top credit rating are able to raise money through the issuance of corporate bonds, he said.
In one of his strongest statements yet on the banking system, the government's goal to resolve the problem of rising non-performing loans via asset management corporations is no "panacea" for the nation's banking woes, he said.
"[Asset management corporations] are not an immediate panacea to the banking system," he reckoned, citing Taiwan's lack of necessary legal underpinnings for their smooth operation.
Taiwan's as-yet unimplemented asset securitization laws -- a mechanism through which collateral can be restructured and sold like securities -- remains another impediment, he warned.
To help ease the financing pressure at domestic companies, Chen meanwhile suggested that the government create a bond market for less healthy firms -- which will suit the appetites of more aggressive investors.
Taiwan has one of the smallest bond markets in Asia, as the complicated trading mechanism leaves out the active retail crowd, most of which generally prefer the more liquid stock market.
Taiwan's fixed income market accounted for 25 percent of GDP compared to 30 percent in Hong Kong and 104 percent in Japan, according to the Asian Bankers Association.
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