Good morning!
It is a great pleasure to have been invited to attend the 5th NTU International Conference on Economics, Finance, and Accounting. You may not be aware of this, but what I feared most when I assumed the presidency in 2000 was not an attack from China, but rather the sudden occurrence of a domestic financial crisis that would devastate Taiwan's economy.
In 1991 and 1992, the Ministry of Finance gave a green light to the establishment of 16 private banks without having first drawn up the necessary supporting measures. Consequently, the number of bank branches in Taiwan surged from 1,382 in 1993 to 2,693 in 2000, doubling in just seven years. The consequent excessively fierce competition between banks led to a deterioration in the quality of banks' credit ratings and an increase in the non-performing loan ratio, which hit a high of 11.4 percent in April 2002.
In the face of this serious challenge, which constituted a potential crisis, the government at that time, with the full support of then-premier Chang Chun-hsiung—who is also the premier today—set 2001 as the First Year of Financial Reforms and passed six financial laws on June 27 of that year. These laws laid the groundwork for future financial reforms.
On August 21, 2002, we proposed the "258 Financial Reform," which had a goal of lowering, within 2 years, the non-performing loan ratio to below 5 percent and achieving a capital adequacy ratio of at least 8 percent. These objectives were achieved ahead of schedule, and, what's more, the latest statistics show our non-performing loan ratio at 2.32 percent and our capital adequacy ratio at 10.11 percent. Both of these figures are better than recommended international standards.
Following the consensuses and conclusions reached during the Economic Development Advisory Conference, the government initiated reforms to overhaul the credit departments of farmers' and fishermen's associations and set up the Financial Supervisory Commission under the Executive Yuan on July 1, 2004, to promote the centralization of financial supervision.
On October 20 of that same year, the government took another step forward by announcing the four goals of the second stage of financial reforms, which were to have at least three financial institutions with at least 10 percent of the market; decrease the number of government-run banks to six; cut by half the number of financial holding companies; and have at least one financial institution with foreign management or listed on a foreign stock exchange.
Three years on, in examining these objectives, we have found that the methods and timetable set to promote the second stage of financial reforms may not be fully satisfactory, but that our objectives are nevertheless correct.
After a recent case in which Rebar Group-owned subsidiaries were hollowed out, the government, in compliance with the Act for the Establishment and Administration of the Financial Restructuring Fund and the Banking Act, has three times—on January 23, March 15, and April 30, made public the names of major loan defaulters.
In the future, the government will make public the names of major defaulters annually to inform the public of the identities of those who have been hollowing out Taiwan's financial industry and absconding with the people's assets. We must endeavor to re-establish order in our financial market so as to bring perpetrators of serious financial crimes to justice.
After years of reflection and efforts at making progress, we can see that the major goal of the first stage of financial reforms was to remove restrictions so as to help stem bank losses, improve the asset structure, and enhance the quality of management. The second stage, meanwhile, focuses on offering more incentives to strengthen the international competitiveness of Taiwan's financial industry.
As I have repeatedly emphasized, we must put equal emphasis on removing restrictions and offering incentives. The successful completion of the first stage of financial reforms simply laid the groundwork for further financial reforms. We must not, therefore, become complacent or limit ourselves because of this achievement. We must offer more incentives if we are to transform Taiwan into a regional financial center or asset management center.
Although efforts to promote the second stage of financial reforms have encountered strong resistance and we have realized a need to reflect on and improve our approaches in pushing for these reforms, we believe that the directions and original goals set for the second stage are correct and must be pursued. The second stage of financial reforms has not failed; it is simply yet to be completed.
In the face of increasingly fierce competition spurred by liberalization and globalization, we have yet to solve such problems as an excess of financial institutions in the domestic market, the offering of overly homogenous financial services, and a lack of innovation among operators. As well, banks have slashed their prices to compete with each other, creating a vicious cycle that has made it difficult for banks to make profits.
In addition, the efficiency of management in banks for which the government is the largest shareholder, which enjoy a substantial market share in Taiwan, often lags far behind that of private banks. Non-economic factors have unfortunately often interfered with and obstructed our efforts to privatize such institutions. As a result, we have not been able to really enhance the competitiveness of Taiwan's financial industry and find it difficult to secure a proper share of the global financial market.
The government, the financial sector, and the ruling and opposition parties must take these issues seriously and work together to solve these problems. I truly hope that financial professionals may be allowed to focus on financial reforms and that economic and financial issues will no longer be made political pawns. If this is not done, it will cause further delays in bringing financial reforms to completion.
I would like to once again thank our hosts for having invited me to today's conference and hope that the valuable opinions shared by and among businesspeople, government officials, and academics from Taiwan and abroad at this conference will help shape the direction and vision of our country's future financial reforms. In closing, I would like to wish this conference great success and all our distinguished guests and friends health and happiness. Thank you.