The central bank asked commercial lenders to lower their prime rates, saying they're still charging borrowers too much after 11 central bank rate cuts over the past year.
Central Bank of China officials met with 17 small and medium-sized banks yesterday to urge them to drop their prime rates from an average 8.5 percent, said an official in the central bank's banking department, who asked not to be identified.
The central bank has slashed its key rate 2 1/2 points to a record-low 2.25 percent since last December in an effort to revive investment and spending and pull Taiwan out of its deepest economic slump in more than a quarter-century.
The bank gave lenders including Ta Chong Bank Ltd (大眾銀行), Dah An Commercial Bank (大安銀行), Shanghai Commercial Bank (上海銀行) and International Bank of Taipei (台北國際銀行) 45 days to consider lowering the rates they charge their best customers. It wants to bring them closer in line with the 6.79 percent rate charged by state-controlled Bank of Taiwan (台灣銀行).
``The reason for [banks] to maintain high prime rates is that they want to make more from consumer loans to cover the losses they're making on corporate lending,'' said Sophia Cheng, banking analyst at Merrill Lynch Taiwan Ltd.
So far, central bank rate cuts haven't spurred borrowing and investment. Taiwan's economy shrank 4.2 percent in the third quarter from a year earlier and contracted 2.4 percent in the second quarter -- its first recession since the mid-1970s.
Rate reductions aren't reaching borrowers as some banks trim their rates only slightly, the central bank said. International Bank of Taipei, for example, said its prime rate has fallen less than one percentage point this year, to 8.3 percent from 8.39 percent at the beginning of the year.
Even if lower bank rates fueled demand for credit, banks may be reluctant to lend as bad loans mount. The government said more than 11 percent of bank loans were delinquent at the end of September.
Goldman Sachs Group Inc estimates the share of bad loans may be as high as 25 percent, said David Chang, a managing director at Goldman Sachs in Taiwan. That means bankers are reluctant to extend new credit.
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