RISKY BUSINESS:Academics said Taiwanese banks looking to grow in China are at risk because in the event of a financial crisis there, Beijing would not bail them out
By Chris Wang / Staff Reporter
The planned expansion of the Taiwanese banking industry into China could be disastrous for itself and depositors, as a financial crisis looms in China from which Taiwanese banks would not be protected, academics told a forum yesterday.
The expansion to China is probably “inevitable,” but expanding there at this time is simply too risky, Huang Tien-lin (黃天麟), a former presidential adviser, told the forum organized by the Taiwan Brain Trust.
Three types of risks should be considered for banks that seek to expand westward — policy risks, domestic risks and corporate operation risks, Huang said.
Overwhelming media reports praising enormous opportunities in the Chinese financial market could lead to the wrong policies and a lack of supervision, he said.
Capital increase by those banks eying expansion into China could also lead to a scaling down of domestic operations, which would hurt local small and medium-sized enterprises, he said.
A banking crisis in China is looming with an estimate of the bad debt ratio at between 30 percent and 40 percent of its banks, Huang said, adding that “if [the crisis] occurs, Taiwanese banks will be in trouble because the Chinese government would not save them.”
The money at risk in China would be the money of Taiwanese depositors, Taiwan Thinktank chairman Chen Po-chih (陳博志) said.
A prevailing “myth” among local banks holds the view that Taiwanese banks “understand the Chinese market more than their rivals and run their businesses better than their Chinese counterparts,” Chen said.
However, Taiwan’s banking sector is not as competitive globally as its manufacturing sector, which has suffered setbacks in China, Chen said.
In addition, local banks’ track records suggest they did do well in the 1990s, when bad debt reached NT$2 trillion (US$66.2 billion), as well as during the consumer credit crisis of 2005 and the US subprime mortgage crisis, he said.
This begs the question why the Executive Yuan overruled a suggestion by the central bank and the Financial Supervision Commission — that the maximum allowed risk exposure be between 50 percent and 60 percent of the net values of each bank — and raised the exposure to 100 percent, Chen said.
“It appears that the government has a hidden agenda behind the policy and has kept some information from the public,” said Wu Hui-lin (吳惠林), a researcher at Chung-Hua Institution for Economic Research.
The government is supposed to disclose all available information to the people, rather than holding back unpleasant information, Wu said.