VZCZCXRO7383
RR RUEHGH
DE RUEHIN #0919/01 1160255
ZNR UUUUU ZZH
R 260255Z APR 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5011
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3660
RUEHBJ/AMEMBASSY BEIJING 6676
RUEHUL/AMEMBASSY SEOUL 8593
RUEHGP/AMEMBASSY SINGAPORE 6879
RUEHKO/AMEMBASSY TOKYO 8697
RUEHML/AMEMBASSY MANILA 0038
RUEHJA/AMEMBASSY JAKARTA 4071
RUEHKL/AMEMBASSY KUALA LUMPUR 3721
RUEHHI/AMEMBASSY HANOI 3303
RUEHBY/AMEMBASSY CANBERRA 4501
RUEHWL/AMEMBASSY WELLINGTON 1766
RUEHHK/AMCONSUL HONG KONG 7925
RUEHGH/AMCONSUL SHANGHAI 1016
RUEHGZ/AMCONSUL GUANGZHOU 0192

UNCLAS SECTION 01 OF 02 TAIPEI 000919 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH and Stratford 
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 AND NY FRB MARIA 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Taiwan Increases Deposit Insurance Premium 
 
 
SUMMARY 
------- 
 
¶1.  Taiwan will increase the deposit insurance premium paid by banks 
starting in July 2007 by shifting the basis for premiums from 
insured deposits to outstanding deposits.  In response to complaints 
of U.S. and European banks in Taiwan, authorities may reduce the 
rate.  END SUMMARY. 
 
Outstanding Deposits to Substitute Insured Deposits 
--------------------------------------------- ------ 
 
¶2.  In January 2007, the Legislative Yuan amended the Deposit 
Insurance Act to shift the basis for calculating premiums from 
insured deposits to total outstanding deposits, effective July 1, 
¶2007.  The amendment was based on a recommendation by the Central 
Deposit Insurance Corporation (CDIC) and the Financial Supervisory 
Commission (FSC). 
 
¶3.  The amount of insured deposits for any bank customer will be 
raised to NT$1.5 million (US$45,450 at the exchange rate of NT$33 
per US$) from NT$1 million (US$30,300). 
 
¶4.  The categories of premium rates will be increased from three to 
five.  The lowest rate will be reduced from the current 0.05% to 
0.03% or 0.04%, while the highest premium rate is increased from 
0.06% to 0.07% or 0.08%, depending on the bank credit rating. 
 
Misleading Press Report 
----------------------- 
 
¶5.  A CDIC official described as "overstated" local press reports of 
April 17 claiming the premium burden on foreign banks will increase 
40 times from current levels.  The CDIC official clarified that the 
premium-based deposits include only checking account deposits, 
demand deposits, and time and savings deposits, but not foreign 
currency deposits, government deposits, the Central Bank's deposits, 
or inter-bank deposits.  Currently, the insured deposits are 
estimated at NT$10 trillion (US$303 billion), about half of the 
NT$22 billion (US$670 billion) in outstanding deposits that will be 
used as the basis of premiums starting in July. 
 
International Practices, Low Premiums 
------------------------------------- 
 
¶6.  The CDIC official told AIT that the United States and Japan and 
most other bank deposit insurance systems base deposit insurance 
premiums on outstanding deposits.  In addition, Taiwan's current 
premiums of 0.05% - 0.06% are among the lowest in the world.  Rates 
in other countries are 0.05% - 0.43% in the United States, 0.083% - 
0.115% in Japan, and 0.05% - 0.14% in Hong Kong. 
 
Premium Burdens to Increase 
--------------------------- 
 
¶7.  Since the deposit base will more than double in July, the 
premium burden on banks will increase substantially.  For foreign 
banks, the increased burdens will be partly offset by a downward 
adjustment of the premium rates from the current 0.05% to 0.04% or 
0.03% based on their better credit rating, according to the CDIC 
official.  For many local banking institutions, the increase in 
their premium burdens will result not only from the proposed change 
in the base but also from the proposed increase in premium rates due 
to poor credit ratings.  Foreign banks' average non-performing loan 
(NPL) ratio in January 2007 was 0.63%, much lower than the 20% 
average for local trust companies, 8% for credit departments of 
farmers' and fishermen's associations, 1.6% for credit coops, and 
 
TAIPEI 00000919  002 OF 002 
 
 
2.28% for domestic banks. 
 
Complaints, Likely Further Changes 
---------------------------------- 
 
¶8.  On April 18, representatives of Taipei's American Chamber of 
Commerce and European Chamber of Commerce raised the premium 
increase during a meeting with FSC Vice Chairperson Susan Chang 
(septel).  In response, Vice Chairperson Chang instructed the CDIC 
to reconsider the proposed premium rates and see if there were any 
possibility for further reductions. 
 
YOUNG