Government should clean up grassroots banks: lawmakers

The China Post staff

Lawmakers yesterday passed a bill requiring the government to clean up the grassroots banking system before it sets its sight on commercial banks. The passage of the bill is likely to delay the financial restructural fund’s plan to investigate the loss-making Chung Shing Commercial Bank, the Central News Agency reported.

Lawmakers passed the bill, backed by the opposition Kuomintang and People First Party, 110 to 95. Opposition lawmakers said the government should focus its efforts in solving problems at community financial institutions before it moves on to commercial banks. But lawmakers from the ruling Democratic Progressive Party disagreed, saying that the use of the fund to tackle problems at commercial banks will better protect the interests of depositors.

The fund, which was set up in mid-2001 with a capital of NT$140 billion in an effort the reduce the banking system’s bad loan woes, had targeted Chung Shing Bank as the first commercial bank to be cleaned up. Non-performing loans within the island’s banking system have been growing as many individuals or companies fail to repay debt due to the persistent economic slump. Many people have been laid off and factories were shut down as Taiwan faced its worst year in 2001.

The overdue loan ratio of Taiwan’s banks has been growing as a result.

The latest statistics announced by the central bank showed that, on average, as high as 8.04 percent of Taiwanese banks’ outstanding loans Please see BANK on page

were overdue at the end of the first quarter, higher than the 7.48 percent recorded at the end of last year.

But if the loans under watch were also included, the ratio hit 11.74 percent as of March 31.

The overdue loan ratio of grassroots financial institutions has always been somewhere between 15 and 20 percent. While there are nascent signs of an economic recovery, many economists are still worried about the uncertainties that lie ahead, and the government has proposed the expansion of the fund’s capitalization in order to more effectively tackle the bad loan problem.