Scoop has an Ethical Paywall
License needed for work use Register



Cablegate: Problem Bank for Sale

This record is a partial extract of the original cable. The full text of the original cable is not available.







E.O. 12958: N/A
SUBJECT: Problem Bank for Sale

1. Summary. Taiwan authorities will auction off another
problem bank currently in receivership at the beginning of
December, part of their on-going effort to reduce the number
of banks and thereby improve the health of Taiwan's
financial sector. However, creditor banks will not receive
payment until the legislature provides additional funding
for the financial reconstruction fund charged with
addressing problem banking institutions. Taiwan has 11
other banks and dozens of small community financial
institutions with relatively high non-performing loan ratios
that have not yet been addressed. End Summary.

Bidding Schedule, Qualifications

2. Taiwan's Central Deposit Insurance Corporation. (CDIC)
will conduct open bidding on December 9 for the Chung Shing
Bank (CSB), the last problem financial institution still
under CDIC receivership (CDIC has not yet addressed the 11
other problem banks). A CDIC official told AIT that
qualifications for bidding have been relaxed to permit both
domestic and foreign securities firms, insurance companies,
and investment institutions. (In the past, only local and
foreign financial holding companies and banks were permitted
to bid for problem banking institutions.) Interested
companies are required to register before November 4. CDIC
also requires that the winning bidder must raise CSB's
capital from the current NTD 5 billion to above NTD 10
billion within three years. If a bank wins the bid, the
bank must still meet the 8 percent capital adequacy ratio
after acquiring CSB.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

Good and Bad Parts of the Bank Separated

3. Although the CDIC sold most of CSB's non-performing
loans in December 2003 and March 2004, the December sale
will also exclude some of CSB's remaining liabilities. The
excluded liabilities are time deposits, deposits of other
banks, negotiable certificates of deposit issued by CSB, and
liabilities obtained from the inter-bank market. CDIC has
obtained the creditor banks' assent to delay repayment of
the NT$64.9 billion owed to them until the Legislative Yuan
passes a bill to increase the funding for the Financial
Reconstruction Fund (FRF, similar to the U.S. RTC.)
According to an official at CDIC's Banking Institution
Disposal Department, if the additional funding bill fails to
pass before the FRF expires on July 9, 2005, the Treasury
will pay the CSB's outstanding liabilities. CSB will not be
required to pay this amount. FRF funding has come from a 2-
percent gross business receipt tax collected from financial
institutions. The CDIC sale in December will be the
remaining, relatively healthy, parts of the bank with a
positive net worth of NTD 6.4 billion. There will be no
need for any additional compensation to the winning bidder
from FRF, as was needed in the two other sales of problem
banks this year.

4. CDIC has received inquiries about the sale from several
foreign firms and seven local financial institutions
(including Cathay United Bank and ChinaTrust Commercial
Bank). Late last year, Taiwan's Bureau of Monetary Affairs
stopped issuing permits for new bank branches in an effort
to address the problem of too many banks for the size of the
market. (Taiwan has more than double the number of bank
branches per capita of other Asian markets.) This leaves
merger or acquisition as the only way to expand bank
networks. The winner of the bid for CSB will take over its
34 branches and will be allowed to open another 12 branches.
The bid winner will also be authorized to transform the CSB
trust department into a branch office and to relocate
offices as desired.
Two Earlier Sales of Problem Banks

5. The use of the financial reconstruction fund to repair
the banks books and the chance to acquire additional bank
branches proved attractive to other domestic banks. In late
May the CDIC sale of the Kaohsiung Business Bank (KBB)
attracted bids from eight local financial institutions. The
winner was the E. Sun Bank, which wanted to expand its
presence in southern Taiwan. In exchange for acquiring the
KBB's 60 banking offices, E. Sun paid NTD 3.73 billion.
This amount was the gap between the FRF's compensation of
NTD 13.37 billion and the KBB's net worth of negative NTD
17.1 billion. In July, the sale of the problem Fifth Credit
Cooperative Association of Fengshan (FCCAF) also attracted
eight bids. The winner was the ChinaTrust Commercial Bank,
which, in exchange for the FCCAF's 10 banking offices, paid
NTD 760 million, the gap between FRF's compensation of NTD
1.1 billion and the FCCAF's net worth of negative NTD 1.86

Serious Problems Remain

6. The resolution of CSB will totally exhaust the FRF
funding of NTD 140 billion. If Taiwan's legislature fails
to increase the funding, there will be no ready solution for
the other 11 problem banks and 93 problem credit departments
of farmers' associations. Financial officials estimate that
NTD 270-280 billion will be required to address these
problem institutions. Taiwan officials have said they
welcome foreign ownership of a local bank to heighten
competition in the banking sector. However, while foreign
investors are allowed to bid for CSB, the restriction on
opening new branches encourages local banks to consider
acquiring CSB in order to expand their business. This
pressure may increase the amount that domestic banks are
willing to pay for CSB.

© Scoop Media

Advertisement - scroll to continue reading
World Headlines

UN News: Aid Access Is Key Priority

Among the key issues facing diplomats is securing the release of a reported 199 Israeli hostages, seized during the Hamas raid. “History is watching,” says Emergency Relief Coordinator Martin Griffiths. “This war was started by taking those hostages. Of course, there's a history between Palestinian people and the Israeli people, and I'm not denying any of that. But that act alone lit a fire, which can only be put out with the release of those hostages.” More

Save The Children: Four Earthquakes In a Week Leave Thousands Homeless

Families in western Afghanistan are reeling after a fourth earthquake hit Herat Province, crumbling buildings and forcing people to flee once again, with thousands now living in tents exposed to fierce winds and dust storms. The latest 6.3 magnitude earthquake hit 30 km outside of Herat on Sunday, shattering communities still reeling from strong and shallow aftershocks. More

UN News: Nowhere To Go In Gaza

UN Spokesperson Stéphane Dujarric said some 1.1M people would be expected to leave northern Gaza and that such a movement would be “impossible” without devastating humanitarian consequences and appeals for the order to be rescinded. The WHO joined the call for Israel to rescind the relocation order, which amounted to a “death sentence” for many. More

Access Now: Telecom Blackout In Gaza An Attack On Human Rights

By October 10, reports indicated that fixed-line internet, mobile data, SMS, telephone, and TV networks are all seriously compromised. With significant and increasing damage to the electrical grid, orders by the Israeli Ministry of Energy to stop supplying electricity and the last remaining power station now out of fuel, many are no longer able to charge devices that are essential to communicate and access information. More


Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.