Identifier
Created
Classification
Origin
06TAIPEI4175
2006-12-22 04:35:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:
Taiwan Takes Over Problem Bank
how-toVZCZCXRO2015 RR RUEHGH DE RUEHIN #4175/01 3560435 ZNR UUUUU ZZH R 220435Z DEC 06 FM AIT TAIPEI TO RUEHC/SECSTATE WASHDC 3519 RUEATRS/DEPT OF TREASURY WASHDC INFO RUCPDOC/USDOC WASHDC RUEHBK/AMEMBASSY BANGKOK 3505 RUEHBJ/AMEMBASSY BEIJING 6123 RUEHUL/AMEMBASSY SEOUL 8346 RUEHGP/AMEMBASSY SINGAPORE 6720 RUEHKO/AMEMBASSY TOKYO 8318 RUEHML/AMEMBASSY MANILA 9870 RUEHJA/AMEMBASSY JAKARTA 3965 RUEHKL/AMEMBASSY KUALA LUMPUR 3614 RUEHHI/AMEMBASSY HANOI 3178 RUEHBY/AMEMBASSY CANBERRA 4393 RUEHWL/AMEMBASSY WELLINGTON 1662 RUEHHK/AMCONSUL HONG KONG 7353 RUEHGH/AMCONSUL SHANGHAI 0654 RUEHGZ/AMCONSUL GUANGZHOU 9838
UNCLAS SECTION 01 OF 02 TAIPEI 004175
SIPDIS
SIPDIS
STATE PLEASE PASS USTR
STATE FOR EAP/RSP/TC, EAP/EP
USTR FOR ALTBACH
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN
E.O. 12958: N/A
TAGS: EINV EFIN EIND ECON PINR TW
SUBJECT: Taiwan Takes Over Problem Bank
SUMMARY
-------
UNCLAS SECTION 01 OF 02 TAIPEI 004175
SIPDIS
SIPDIS
STATE PLEASE PASS USTR
STATE FOR EAP/RSP/TC, EAP/EP
USTR FOR ALTBACH
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN
E.O. 12958: N/A
TAGS: EINV EFIN EIND ECON PINR TW
SUBJECT: Taiwan Takes Over Problem Bank
SUMMARY
--------------
1. (U) In mid-December 2006, Taiwan took over the insolvent
Taitung Business Bank (TBB). TBB board directors may not leave
Taiwan. The Central Deposit Insurance Corporation (CDIC) has
sufficient funding to address TBB, but insufficient funds to resolve
seven other problem banking institutions. Taiwan authorities had
expected restricting bank branching would motivate sound banks to
acquire the problem institutions, but this has not happened. END
SUMMARY.
Takeover
--------------
2. On December 15, the Financial Supervisory Commission (FSC)
ordered CDIC to take over TBB and assured 100-percent protection for
TBB depositors. With these assurances, the takeover has been
orderly without any run on TBB.
3. Meanwhile, FSC restricted TBB board directors from leaving
Taiwan and from transferring their properties. CDIC dispatched
more than 20 officers, including a senior vice president, to execute
the takeover order. TBB has 31 branch offices on the island,
including 12 in Kaohsiung, ten in Taitung, and five in Pingtung.
4. TBB was the 50th banking institution taken over by the
authorities since the banking crisis of 2001 when Taiwan's average
NPL ratio shot up to 11.7%. The 49 problem banking institutions
taken over earlier included 37 farmers association (FA) credit
departments, nine credit cooperative associations, and two banks.
Delinquency
--------------
5. TBB reported a pre-tax loss of NT$31.8 billion (US$978 million)
in the first 11 months of 2006. TBB's net worth as of November 2006
was negative NT$1,089 million (-US$33.5 million at exchange rate of
NT$32.5 per US$). Its capital adequacy ratio was negative 3.7%, a
sharp contrast to the minimum 8% required by BASEL II. Its
non-performing loan (NPL) ratio was 23%, far higher than the 5%
limit acceptable to FSC.
6. Prior to the mid-December takeover, FSC had given TBB chances to
improve its financial performance over the past two years. However,
TBB failed to raise additional capital from its major shareholders
or prospective new investors. It failed to stop losses or reduce
its NPL ratio.
Funding
--------------
7. FSC said that it has sufficient funding to resolve the TBB case.
The Financial Reconstruction Fund (FRF),Taiwan's RTC, still has a
balance of NT$40 billion (US$1.2 billion). In addition, CDIC has an
outstanding deposit insurance fund of NT$13 billion (US$400
million). Funding from these two sources, totaling NT$53 billion
(US$1.6 billion),will easily cover the estimated NT$3.7 billion
required to reorganize TBB and subsequently sell it over the next
six months, according to CDIC.
COMMENT
--------------
7. CDIC funds are insufficient to deal with seven other problem
banking institutions in Taiwan, including three banks (all larger
than TBB),two trust companies (also larger than TBB),and two
credit cooperatives. With lingering problem institutions and
TAIPEI 00004175 002 OF 002
limited funding, Taiwan authorities may continue to restrict new
bank branches in hopes this will motivate sound banks to acquire the
problem institutions. However, this policy has not produced any
results over the past three plus years.
YOUNG
SIPDIS
SIPDIS
STATE PLEASE PASS USTR
STATE FOR EAP/RSP/TC, EAP/EP
USTR FOR ALTBACH
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN
E.O. 12958: N/A
TAGS: EINV EFIN EIND ECON PINR TW
SUBJECT: Taiwan Takes Over Problem Bank
SUMMARY
--------------
1. (U) In mid-December 2006, Taiwan took over the insolvent
Taitung Business Bank (TBB). TBB board directors may not leave
Taiwan. The Central Deposit Insurance Corporation (CDIC) has
sufficient funding to address TBB, but insufficient funds to resolve
seven other problem banking institutions. Taiwan authorities had
expected restricting bank branching would motivate sound banks to
acquire the problem institutions, but this has not happened. END
SUMMARY.
Takeover
--------------
2. On December 15, the Financial Supervisory Commission (FSC)
ordered CDIC to take over TBB and assured 100-percent protection for
TBB depositors. With these assurances, the takeover has been
orderly without any run on TBB.
3. Meanwhile, FSC restricted TBB board directors from leaving
Taiwan and from transferring their properties. CDIC dispatched
more than 20 officers, including a senior vice president, to execute
the takeover order. TBB has 31 branch offices on the island,
including 12 in Kaohsiung, ten in Taitung, and five in Pingtung.
4. TBB was the 50th banking institution taken over by the
authorities since the banking crisis of 2001 when Taiwan's average
NPL ratio shot up to 11.7%. The 49 problem banking institutions
taken over earlier included 37 farmers association (FA) credit
departments, nine credit cooperative associations, and two banks.
Delinquency
--------------
5. TBB reported a pre-tax loss of NT$31.8 billion (US$978 million)
in the first 11 months of 2006. TBB's net worth as of November 2006
was negative NT$1,089 million (-US$33.5 million at exchange rate of
NT$32.5 per US$). Its capital adequacy ratio was negative 3.7%, a
sharp contrast to the minimum 8% required by BASEL II. Its
non-performing loan (NPL) ratio was 23%, far higher than the 5%
limit acceptable to FSC.
6. Prior to the mid-December takeover, FSC had given TBB chances to
improve its financial performance over the past two years. However,
TBB failed to raise additional capital from its major shareholders
or prospective new investors. It failed to stop losses or reduce
its NPL ratio.
Funding
--------------
7. FSC said that it has sufficient funding to resolve the TBB case.
The Financial Reconstruction Fund (FRF),Taiwan's RTC, still has a
balance of NT$40 billion (US$1.2 billion). In addition, CDIC has an
outstanding deposit insurance fund of NT$13 billion (US$400
million). Funding from these two sources, totaling NT$53 billion
(US$1.6 billion),will easily cover the estimated NT$3.7 billion
required to reorganize TBB and subsequently sell it over the next
six months, according to CDIC.
COMMENT
--------------
7. CDIC funds are insufficient to deal with seven other problem
banking institutions in Taiwan, including three banks (all larger
than TBB),two trust companies (also larger than TBB),and two
credit cooperatives. With lingering problem institutions and
TAIPEI 00004175 002 OF 002
limited funding, Taiwan authorities may continue to restrict new
bank branches in hopes this will motivate sound banks to acquire the
problem institutions. However, this policy has not produced any
results over the past three plus years.
YOUNG