Taiwan Authorities Renew Call for Calm After Taking Over Failing Bank

Posted 08 January 2007 @ 11:04 am EET     Print     Reprint     E-Mail     Comments

TAIPEI (AP) - Taiwan authorities renewed a call for calm among depositors after the government took over a bank faced with a run on funds and insisted there was no risk to the financial system as a whole. "The government guarantees that the rights and benefits of all of the bank's depositors will be fully protected in a timely and appropriate manner after the government takeover. There is no need for depositors to worry," Finance Minister Ho Chih-chin told reporters.

The government took over The Chinese Bank on Saturday following panic runs all over the island after two financially-stricken units of the Rebar group announced Friday they had filed bankruptcy reorganisation applications with the Taipei District Court. "I have faith in Taiwan's financial system which is sound enough to take on the bank's difficulties. It is unlikely for Taiwan to suffer a systematic financial crisis," Ho said.

An official from the Financial Supervisory Commission said the government has at least 100 billion dollars (3.05 billion US) in funds available, including 40 billion dollars from the financial restructuring fund, to meet withdrawls by the bank's depositors. On Sunday, eight local banks also took over Great Chinese Bills Finance Corporation, another financially troubled unit of the Rebar group.

On Monday, depositors were still lining up to withdraw money at The Chinese Bank's 35 branches islandwide despite the government's reassurances. It is estimated that last week's runs amounted to at least 20 billion dollars. Chia Hsin Food and Synthetic Fiber, a subsidiary in the group, is burdened with 19.9 billion dollars in debt from losses in its man-made fiber business.

China Rebar, an insurance, financing, broadband and TV shopping business, which acts as guarantor to Chia Hsin Food and Synthetic Fiber, has debts worth 20.7 billion dollars. The local stock market was hard hit Monday by the news, losing 1.26 percent as the financial sector shed 1.38 percent. Shares lost 1.5 percent Friday.

National Securities analyst Hank Chen said investors feared a possible spill-over effect on other unhealthy local banks. "But it (should) only be a short-term impact as the bank is just a small-sized financial institution and not a major player at all in the local financial market," Chen said.

The ailing Enterprise Bank of Hualien was also taken over by the government Saturday. Media reports said five other finanical institutions are on the commission's watchlist. Premier Su Tseng-chang Sunday asked customers of The Chinese Bank not to panic, saying that "depositors will not lose even a single cent of money they deposit at the bank."

The island's investigation bureau, meanwhile, has barred Rebar's founder Wang You-theng and 18 of his family members from leaving Taiwan pending investigations. Fred Lin, a spokesman of the Taipei District Prosecutors Office, said prosecutor Chuang Cheng will lead a team to probe alleged irregularities in the Rebar group.

The allegations include breach of trust, insider trading, forgeries and violation of acccounting regulations. As of the end of 2006, The Chinese Bank's 35 branches had deposits totalling 169.72 billion dollars and loans amounting to 124.66 billion billion dollars. Its non-performing loan (NPL) ratio reached 9.05 percent at the end of October, much higher than the banking system's average of 2.39 percent. Its NPLs reached 11.56 billion dollars.

The Chinese Bank posted a 5.27 billion dollars pretax loss at the end of December, compared with a loss of 2.26 billion dollars at the end of June.