03.08.2001
Banks urged to increase lending

• Following three interest rate cuts by Taiwan's Central Bank (CBC) since December 2000, domestic banks remain reluctant to reduce lending rates significantly in order to avoid building up bad loans.

• In a series of cuts, the CBC reduced its re-discount rate to 4.25% in March, from 4.75% in November 2000. On Tuesday, the Bank of Taiwan (unlisted) announced a symbolic cut in its prime lending rate to 7.08% from 7.10%. The average prime lending rate of the five leading banks currently stands at 7.65%, compared to 7.71% in December 2000.

• Meanwhile, local businesses are asking the government to urge banks to grant new one year extensions to loans. The government said yesterday that it may consider new measures to prompt banks to rollover maturing loans. The CBC and the Ministry of Finance are considering the suspension of NCD sales to banks whose lending record is lower than the banking system average.

• This is not the first time that the government has urged banks to increase lending. With non-performing loans on the up, we are of the view that banks will continue to remain cautious and be reluctant to extend loans. Despite further interest rate cuts by the CBC ahead, banks will continue to be reluctant to reduce lending rates in order to avoid exacerbating their bad loan situation.

IrmakSurenkok@Primasia.com +886-[0]2-2547-8873