Sunday, November 19 10:02 AM SGT

Taiwan authorities urged to prevent possible financial crisis TAIPEI, Nov 19 (AFP) - The government of President Chen Shui-bian must act swiftly to prevent a feared financial crisis as Taiwan's banks struggle to recoup loans amid dwindling equity markets.

"The situation is worrisome...falling stock and property markets, expanding capital outflow... and banks' lending and growth have dipped by half," said former finance minister Paul Chiu.

"There is a possibility that a small-scale financial crisis may happen in Taiwan if the government fails to check current problems," he added.

Banking professor Normin Yin said current financial woes had stemmed mainly from lax government supervision and irregular lendings over influence-peddling by politicians, power groups and conglomorates.

He feared that in the coming months many companies would collapse as banks tightened credit facilities.

Their concerns followed a report in the November 11 issue of the Britain-based Economist magazine.

The article titled "Too Many Debts to Settle" said the island might "suffer its own (belated) version of the Asian crisis -- perhaps even before the Chinese New Year in January."

It said analysts thought bad loans could rise to two to three times the government estimate of 5.0 percent, and "many fear there is a fully-fledged banking crisis in the offing..."

"Taiwan's credit crunch is serious. Many local companies may not be able to survive until the Lunar New Year" under burden of high demand in liquidity ahead of the major holiday, said Yin of National Chengchi University.

Banks have tighented credit due to high lending risks amid plunging stock and real estate markets, despite sufficient liquidity from the central bank, Yin said.

Yin urged authorities to take effective steps to correct loopholes in banking laws, enforce supervision and weed out non-performing banks.

Many local enterprises were under financial stress as lendings to the private sector by local banks last year shrank by more than 60 percent, said Chen Po-chieh, chairman of the Council for Economic Planning and Development.

Finance Minister Yen Ching-chang, however, dismissed fears of a financial storm saying it was "unlikely" as local banks' non-performing loan (NPLs) ratios were controlled to within a safe range.

The NPL ratios posted a record 6.25 percent, or some 950 billion Taiwan dollars (29.6 billion US), at the end of September.

Chiu, meanwhile, proposed a rescue package urging authorities to speed up consolidation of local banks, set up assests management firms to liquidate unhealthy banks, and form a unit to check banking operations.

The Commercial Times said the number of local banks needed to be consolidated by about a third to ease overbanking and irregularities and a supervisory agency was needed to uncover wrongdoings and supervise banking reforms.

Taiwan's stock market has plunged some 40 percent since Chen took office on May 20.

Overdevelopement and the lack of confidence in the new administration have also pressed down property prices by up to 30 percent since 1995, according to Sinyi Realty Inc.

"The new government has exerted its strength to consolidate power but it has not done enough for local economy," said Michael Hsu, manager with Fubon Securities International Ltd.

"It is going through a learning curve which has reflected on the stock market," said Hsu.

An immediate way to regain people's faith was to open full direct links with China before the two sides joined the World Trade Organisation, said Chen Ming-lang, research fellow at Taiwan's highest research organisation Academia Sinica.

Taiwanese businessmen have also called for full cross-strait exchanges in transport, trade, and postal services to cut costs and beef up competitiveness.

Taiwan has banned direct contact with China since the two separated in 1949 at the end of a civil war.

The government is however set to open three "mini" links in January between Taiwan's frontline islets of Kinmen (Quemoy) and Matsu and the Chinese southeastern Fujian province.

-- Carl Jenkins (somewherepress@aol.com), November 19, 2000

Answers

Taiwan and South Korea are in desperate straights. Very wobbly dominoes. But as long the Americans keep on consuming, the global economy will be just fine.....right!

Hah! Recession right around the corner, thanks mostly to energy prices. Anybody happy with their $200 natural gas bills? Its like another major tax and that means less consuming done by Americans and if we start consuming less, who's going to take up the slack?

-- Guy Daley (guydaley@altavista.com), November 19, 2000.