Taiwan proposes using postal bank to spur lending

TAIPEI (Reuters) - Taiwan's top financial regulator proposed allowing the government-owned postal bank to put some of its deposits in private banks to spur more lending, as part of broader economic-boosting measures.

The proposal, which would allow the government to tap some of the postal bank's T$4 trillion ($119 billion) in deposits, is part of a broader package of economic stimulus measures that new Financial Supervisory Commission Chairman Sean Chen proposed to the legislature on Thursday.

"We will coordinate with the transport ministry to allow the postal office to transfer its deposits to small- and medium-sized banks to encourage them to lend," Chen said in a prepared speech delivered to parliament.

Taiwan's transport ministry oversees the operations of the postal office, Chunghwa Post Co Ltd, and the financial regulator's moves would require some regulatory changes at the transport ministry.

The proposal could provide lower funding cost for banks, but leaves them with risks of possible bad loans due to financial instability at many companies as many sectors are faced with a slowdown.

Bankers welcomed the move, but said putting more deposits into their systems wouldn't necessarily make them lend more in the current risky environment that has seen many companies run into financial difficulties due to an economic downturn.

"We are willing to cooperate with the Commission and increase loans to businesses," said Andrew Lee, chief financial officer of EnTie Bank (2849.TW), a mid-sized lender controlled by private equity fund Longreach.

"Having said that, we still need to manage our risk carefully," Lee said.

Other measures would include relaxing restrictions on Hong Kong and South Korea-listed firms coming to Taiwan to make second listings, according to a parliament agenda for Thursday morning.

Taiwan's banking and insurance sub-index .TFNI ended down 3.5 percent and the TAIEX index .TWII closed 1.2 percent lower, surrendering earlier gains.

The commission's move is part of the Taiwan government's plans to stimulate the economy.

The government plans to provide T$122.6 billion in subsidies and tax cuts, and an extra T$58.3 billion in infrastructure spending.

($1 = T$33.6)

(Additional reporting by Doug Young and Faith Hung; Editing by Anshuman Daga)