06.11.2001
New guidelines to prevent credit crunch

• The Ministry of Finance (MoF) will formalize guidelines for local banks in efforts to prevent a possible credit crunch. The guidelines will require banks to disclose outstanding loans and guarantees amounts to the government on the 15th of every month instead of the current end of the month deadline. Monthly figures will be compared to Dec 2000 numbers, and banks must keep similar amounts of loans outstanding or if not, explain the reason and propose ways to improve.

• The focus of the guidelines is no longer limited to the 12 government-linked banks, but all the banks and Bills Finance Companies (BFC) in Taiwan. The MoF has been talking with the chairman of the 12 government-linked banks regarding their outstanding loan amount. Originally it wanted the 12 government-linked banks to lead the other banks. However, due to the present economic situation, the MoF believes that all banks have the responsibility to help the economy recover by giving more credit to enterprises in Taiwan.

• VB Primasia Opinion: Many banks have focused on improving asset quality rather than increasing their loans. We expect the new guidelines to exert pressure on all banks. Moreover, in order to extend more credit to financially sound enterprises, banks may have to compete in their offer rates, which may lead to a price war that adversely affects their bottom lines.

WilliamFong@Primasia.com +886-[0]2-2547-8864