Identifier
Created
Classification
Origin
07TAIPEI49
2007-01-09 01:50:00
UNCLASSIFIED
American Institute Taiwan, Taipei
Cable title:
Taiwan Takes Over Two More Banks
how-toVZCZCXRO2516 RR RUEHGH DE RUEHIN #0049/01 0090150 ZNR UUUUU ZZH R 090150Z JAN 07 FM AIT TAIPEI TO RUEHC/SECSTATE WASHDC 3654 RUEATRS/DEPT OF TREASURY WASHDC INFO RUCPDOC/USDOC WASHDC RUEHBK/AMEMBASSY BANGKOK 3518 RUEHBJ/AMEMBASSY BEIJING 6166 RUEHUL/AMEMBASSY SEOUL 8370 RUEHGP/AMEMBASSY SINGAPORE 6739 RUEHKO/AMEMBASSY TOKYO 8351 RUEHML/AMEMBASSY MANILA 9886 RUEHJA/AMEMBASSY JAKARTA 3973 RUEHKL/AMEMBASSY KUALA LUMPUR 3623 RUEHHI/AMEMBASSY HANOI 3187 RUEHBY/AMEMBASSY CANBERRA 4404 RUEHWL/AMEMBASSY WELLINGTON 1670 RUEHHK/AMCONSUL HONG KONG 7396 RUEHGH/AMCONSUL SHANGHAI 0677 RUEHGZ/AMCONSUL GUANGZHOU 9859
UNCLAS SECTION 01 OF 02 TAIPEI 000049
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 Two More Banks
REF: (A) 06 TAIPEI 4175, (B) 05 TAIPEI 2546
SUMMARY
-------
UNCLAS SECTION 01 OF 02 TAIPEI 000049
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 Two More Banks
REF: (A) 06 TAIPEI 4175, (B) 05 TAIPEI 2546
SUMMARY
--------------
1. (U) Only three weeks after taking over the insolvent
Taitung Business Bank (TBB, reported ref A),Taiwan
ordered takeover of two more banks, one insolvent and the
other suffering a bank run. Financial regulators
guaranteed 100%-protection of deposits to prevent
financial instability. END SUMMARY.
Enterprise Bank of Hualien Insolvent
--------------
2. (U) On the afternoon of January 5, Taiwan's Financial
Supervisory Commission (FSC) ordered the Central Deposit
Insurance Corporation (CDIC) to take over Enterprise Bank
of Hualien (EBH, Hualien Qiyin). FSC indicated that EBH
had lost capability to fulfill its liability obligations.
FSC had repeatedly urged EBH to improve its financial
status on its own ever since Taiwan's legislature in June
2005 denied additional funding for the Financial
Reconstruction Fund (FRF),equivalent to the Resolution
Trust Corporation (RTC) in the United States (ref B),to
support EBH and several other problem banks. However,
EBH has failed to raise additional capital from major
shareholders or from prospective domestic and foreign
investors.
3. (U) FSC referred board directors and key executives
of EBH to law enforcement agencies for investigation and
requested they be barred from transferring properties or
from leaving Taiwan. EBH has 31 banking offices,
including 19 in Taipei City and County and eight in
Hualien. By November 2006, EBH reported negative net
worth of NT$7,781 million (US$239 million). Its capital
adequacy ratio was negative 17.73%. Its non-performing
loan ratio reached 30%, the highest among local banks.
Second Takeover
--------------
4. (U) Only 90 minutes after the FSC's January 5
announcement on EBH, FSC received a request from Chinese
Bank (CB, Zhonghua Yinhang) to take over CB because the
bank was suffering a run caused by the reorganization
announcement of China Rebar and Chia Hsin Food &
Synthetic Fiber, its two major shareholder companies. On
the afternoon of January 5, depositors withdrew NT$15
billion (US$461.5 million) from CB, with a long line
waiting even after office hours.
5. (U) In response, FSC ordered CDIC to take over CB and
assured 100% protection of deposits with CB. Until the
possibility of illegal conduct is investigated, the FSC
suspended all CB board directors from their duties and
urged law enforcement agencies to restrict them from
transferring properties or leaving Taiwan. Although CB
suffered a pre-tax loss of NT$5,267 million (US$162
million) in 2006, its net worth was still positive
NT$10,017 million (US$308 million). Its non-performing
loan ratio was 8.13%, higher than the 5% limit set by the
FSC. With official support, CB remains open, though on
January 8 customers continued to withdraw funds.
According to FSC Vice Chair Susan Chang, CB customers
pulled out NT$7.6 billion (US$233.8 million).
TAIPEI 00000049 002 OF 002
Insufficient Funds
--------------
6. (SBU) Premier Su Tseng-chang, Central Bank Governor
Perng Fai-nan, and Minister of Finance Ho Chih-chin all
supported the FSC's 100% guarantee of deposits at EBH and
CB. However, combined with the the CDIC's recent
takeover of Taitung Business Bank (TTB) in the mid-
December 2006 (ref A) this obligation could easily exceed
funding available for resolution of other problem banks.
According to CDIC, the funding available to the FRF prior
to the recent three takeover cases totaled only NT$53
billion (US$1.6 billion).
7. (SUB) By delaying funding for the FRF since 2002, the
legislature has stymied the efforts of financial
regulators to fully resolve Taiwan's banking crisis of
2001. Problem financial institutions that should have
been shut down long ago have been allowed to continue
doing business. Delays in dealing with the remaining
problem banks will postpone Taiwan's development of an
efficient banking sector.
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 Two More Banks
REF: (A) 06 TAIPEI 4175, (B) 05 TAIPEI 2546
SUMMARY
--------------
1. (U) Only three weeks after taking over the insolvent
Taitung Business Bank (TBB, reported ref A),Taiwan
ordered takeover of two more banks, one insolvent and the
other suffering a bank run. Financial regulators
guaranteed 100%-protection of deposits to prevent
financial instability. END SUMMARY.
Enterprise Bank of Hualien Insolvent
--------------
2. (U) On the afternoon of January 5, Taiwan's Financial
Supervisory Commission (FSC) ordered the Central Deposit
Insurance Corporation (CDIC) to take over Enterprise Bank
of Hualien (EBH, Hualien Qiyin). FSC indicated that EBH
had lost capability to fulfill its liability obligations.
FSC had repeatedly urged EBH to improve its financial
status on its own ever since Taiwan's legislature in June
2005 denied additional funding for the Financial
Reconstruction Fund (FRF),equivalent to the Resolution
Trust Corporation (RTC) in the United States (ref B),to
support EBH and several other problem banks. However,
EBH has failed to raise additional capital from major
shareholders or from prospective domestic and foreign
investors.
3. (U) FSC referred board directors and key executives
of EBH to law enforcement agencies for investigation and
requested they be barred from transferring properties or
from leaving Taiwan. EBH has 31 banking offices,
including 19 in Taipei City and County and eight in
Hualien. By November 2006, EBH reported negative net
worth of NT$7,781 million (US$239 million). Its capital
adequacy ratio was negative 17.73%. Its non-performing
loan ratio reached 30%, the highest among local banks.
Second Takeover
--------------
4. (U) Only 90 minutes after the FSC's January 5
announcement on EBH, FSC received a request from Chinese
Bank (CB, Zhonghua Yinhang) to take over CB because the
bank was suffering a run caused by the reorganization
announcement of China Rebar and Chia Hsin Food &
Synthetic Fiber, its two major shareholder companies. On
the afternoon of January 5, depositors withdrew NT$15
billion (US$461.5 million) from CB, with a long line
waiting even after office hours.
5. (U) In response, FSC ordered CDIC to take over CB and
assured 100% protection of deposits with CB. Until the
possibility of illegal conduct is investigated, the FSC
suspended all CB board directors from their duties and
urged law enforcement agencies to restrict them from
transferring properties or leaving Taiwan. Although CB
suffered a pre-tax loss of NT$5,267 million (US$162
million) in 2006, its net worth was still positive
NT$10,017 million (US$308 million). Its non-performing
loan ratio was 8.13%, higher than the 5% limit set by the
FSC. With official support, CB remains open, though on
January 8 customers continued to withdraw funds.
According to FSC Vice Chair Susan Chang, CB customers
pulled out NT$7.6 billion (US$233.8 million).
TAIPEI 00000049 002 OF 002
Insufficient Funds
--------------
6. (SBU) Premier Su Tseng-chang, Central Bank Governor
Perng Fai-nan, and Minister of Finance Ho Chih-chin all
supported the FSC's 100% guarantee of deposits at EBH and
CB. However, combined with the the CDIC's recent
takeover of Taitung Business Bank (TTB) in the mid-
December 2006 (ref A) this obligation could easily exceed
funding available for resolution of other problem banks.
According to CDIC, the funding available to the FRF prior
to the recent three takeover cases totaled only NT$53
billion (US$1.6 billion).
7. (SUB) By delaying funding for the FRF since 2002, the
legislature has stymied the efforts of financial
regulators to fully resolve Taiwan's banking crisis of
2001. Problem financial institutions that should have
been shut down long ago have been allowed to continue
doing business. Delays in dealing with the remaining
problem banks will postpone Taiwan's development of an
efficient banking sector.
YOUNG