Taiwan's stock market paused for breath when local finance house, Pan Asia Bank, released its grim 1998 financial results. Pan Asia is too small to affect the Taiwanese banking sector at large but investors and analysts are worried that the size of Pan Asia's losses, NT$6.2 billion ($194 million), combined with an 8% overdue loan ratio, indicate that the Taiwanese banking sector could become the next victim of the Asian downturn. A total collapse is not forecast but deterioration in the sector's overall health is on the cards.
But instead of introducing measures to shore up the domestic finance industry, Taiwan's finance ministry is coming in for criticism for policies that have exacerbated rather than eased existing weaknesses.
Policy initiatives include easing company reporting standards rather than tightening them. The government has applied pressure on banks not to sell stock into a declining Taipei stock market and similar pressure to loosen loan approval requirements for small and medium-size enterprises.
According to Brian Oak, vice-president at Moody's, the Taiwanese financial sector already suffers four major structural problems: excessive competition; a deterioration of asset quality partly due to economic slowdown; an over-speculative tendency; and a dependence on collateral-based loans instead of cashflow analysis, because of the lack of sufficient transparency in Taiwanese companies.