Taiwan Backs Away From 10-Year Stock Write-offs (Update1)
By Brett Cole
Taipei, Dec. 12 (Bloomberg) -- Taiwan's plan to let banks write off losses from this year's 37 percent fall in the nation's stock market over the next decade is ``not good'' and will apply for only one year, a finance ministry official said.
Taiwan's government had announced the earlier changes -- from a policy of recognizing losses each year that aimed to stop banks from selling stock they acquired as collateral on loans -- late last month.
The latest turnaround follows a wave of criticism from analysts, who said the government was letting banks disguise the cost of attempting to support the island's stock market.
``We know it's not good'' to allow banks to write off their share investment losses over 10 years, said Tsai Ching-nain, deputy director general at the bureau of monetary affairs in an interview. He said the 10-year policy was ``difficult to explain'' and would now only last for one year.
Taiwan's banks are under pressure to keep lending to cash- strapped companies amid reports that bad loans in Taiwan may be as high as 10 percent of total lending. As the stock market falls, so does the value of the stock many of the islands 53 banks accepted as loan collateral.
Taiwan's Finance Ministry said last week that bad loans were 5.49 percent of total loans, though that rose to 15.6 percent for credit co-operatives. Tsai reiterated those figures and said too much emphasis had been placed on non-performing loans.
Collateral Damage
``The international press has exaggerated the problem,'' he said. ``Non-performing loans are still manageable.''
The central bank has said non-performing loans may be as high as 10 percent, though it now endorses the ministry's estimate.
Still, analysts such as John Caparusso at Salomon Smith Barney Securities Taiwan Ltd. estimate bad loans may be as high as 15 percent of total lending.
Tsai said loans on which no interest and principal had been paid for six months were classed as bad in Taiwan, while in the U.S. it was three months, explaining the discrepancy in estimates.
Tsai said the government wants banks to be more careful when accepting shares as collateral. Banks have taken on NT$240 billion ($7.25 billion) worth of shares as of Oct. 31 as collateral, he said.
Banks are allowed to invest up to 20 percent of their net worth in shares and they have invested NT$130 billion in local equities, he said.
Unusual performance
This year the benchmark TWSE Index is on track for its biggest loss since 1990 when it fell 53 percent. The index has dropped 37 percent in the year to date.
This prompted the easing in rules for writing off stock losses.
``The stock market's performance has been unusual,'' Tsai said.
Tsai's comments on the policy came after Taiwan's Securities and Futures Commission earlier this month criticized the plan.
``The 10-year write off on securities investment losses violates basic accounting principles,'' said SFC Chairman Chu Jaw- chyuan in a report in the Taipei Times. ``This policy would encourage the banking industry to become a stock manipulating machine.''
Tsai said most of the problems in the financial system were concentrated in the 316 fishing and farming credit cooperatives whose average net worth -- assets minus liabilities -- was NT$250 billion.
Tsai estimates that less than 20 of the fishing and farming cooperatives may need help.
The government may inject public funds into institutions if there is a deficit between their liabilities and assets, Tsai said without giving details.
He said the government would not set up an agency to buy bad loans from financial institutions. Rather, asset management companies would buy non-performing loans directly from financial institutions. |
