Michelle Hsu, The China Post
On the first day operating under the government’s strict supervision, the 36 grass-roots financial institutions yesterday operated normally without any bank runs, even though the government was said to have prepared over NT$60 billion for dealing with financial chaos if necessary.
One major reason for the peaceful scene, as market observers pointed out, was the passage in June of a revision on the bank deposit insurance law, assuring full coverage to any bank deposits when the involved financial institution goes bankrupt.
Yesterday, the financial market generally operated peacefully, and financial shares on the stock market performed strongly with some titles rising to their daily limits, applauding the government’s determination to restructure the local financial market.
The MOF last Friday began its first round of financial restructuring moves in accordance with the measures proposed by the financial restructure fund, beginning with 36 farmers and fishermen’s association and co-ops, mostly located in central and southern Taiwan. The 36 grass-roots financial institutions are those in the worst financial situations, all having a negative net assets value. Last Friday, the MOF dispatched dozens of supervisors from the Central deposit Insurance Corp. and eight major banks to supervise them, the first step towards the banks taking over the cash-strapped financial institutions.
“While monitoring their operations, the supervisors will at the same time evaluate the cost of the takeover, with a view to avoid having the takeover drag down the financial conditions and credit-ratings of these banks,” said an official at the MOF. “It may take one or two months to go through the takeover procedure,” he estimated.
The negative net asset value of the 36 financial institutions was estimated to reach NT$70 billion in total, and most of their pledged assets are difficult to sell due to the sharp depreciation of their market prices. About ten of the institutions were reportedly found to have extended loans illegally, mostly involving local politics. Some market observers said that this move is in line with the DPP-government’s policy of breaking the close relation between KMT politicians and grass-roots financial supporters.
Though large in number, market observers said that the 36 financial institutions actually make up only a slim market share.
The outstanding loans extended by the 36 financial institutions are estimated at around NT$100 billion, compared to their total paid-in capital of NT$55 billion. On average, daily withdrawals at the 36 financial institutions range from NT$10 million to NT$20 million.