VZCZCXRO2516
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 
------- 
 
¶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