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Lawmakers examine state-run banks as cut in rates is considered

TAIPEI, Taiwan -- At a Legislative Yuan session yesterday, lawmakers examined eight state-run banks, mulling over a proposal to reduce the maximum allowable interest rate from 20 percent to 16 percent, while raising suspicions that Taiwan's banking sector has been reaping anomalously exorbitant profits at the cost of the public's interests.

In response to lawmakers' queries, four state banks, Mega International Commercial Bank (兆豐金), First Bank (第一金), the Taiwan Cooperative Bank (合庫), and the Taiwan Business Bank (台企銀) confirmed that their credit card operations were profitable. However, of the eight state banks, only Mega Bank and First Bank indicated that their credit card operations were profitable during the past three years. Six state-run banks, the Bank of Taiwan (台銀), the Land Bank of Taiwan (土銀), the Taiwan Cooperative Bank, Hua Nan Bank (華銀), Chang Hua Bank (彰化銀), and the Taiwan Business Bank stated to lawmakers that they would continue credit card services to customers even if the proposal to reduce the maximum allowable interest rate to 16 percent was passed.

In light of rapidly expanding mortgage loan amounts being doled out recently, with the exception of the Taiwan Business Bank and the Taiwan Cooperative bank, state-run banks stated to lawmakers that they would consent to a bank soundness examination in the event of a 30 percent decline in housing markets across the globe. All eight banks indicated confidence that they expect to pass such an examination with flying colors if the housing market takes a 10- or 20-percent hit.

Despite the banks' assurances, a lawmaker reiterated that following the Asian financial crisis, the economies of Malaysia and Thailand had gone through a decade-long slump, as the regions' real estate bubble burst and tumbled more than 30 percent in value.

With total outstanding home loans tallied at about NT$7.5 trillion, Taiwan's financial sector may not be able to bear the impact of a 30-percent decline in property prices, said the lawmaker. The lawmaker continued to question the Bank of Taiwan on how it intends to forge through catastrophic market developments with its land and properties loan portfolio of NT$500 billion. The Bank of Taiwan replied that it had weathered the Asian financial crisis by gaining new deposits in excess of NT$500 billion, and that its assets are still continuing to grow, while assuring that its BIS capital adequacy ratio ratings are sound.

The lawmaker urged banks to exercise greater caution when approving home mortgages, in particular those intended for high-priced luxury condos, but provide more leniency to first-time home buyers, saying that banks should offer loans as high as 80 or 90 percent of property value for the younger demographic.

The Financial Supervisory Commission (FSC, 金管會) issued a similar advisory, urging banks to note heavy concentrations of borrowing activity, and increase capital reserves.

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