The Taiwan government will set up an asset management company (AMC) on 1 January next year to deal with the mounting bad debt problem in the country's banking system, according to Yen Ching-chang, the newly appointed finance minister.

The government-run agency will have a budget of NT$10 billion (around $321 million) to purchase troubled assets from local financial institutions, substantially less than the NT$20 billion to NT$30 billion mooted by the government when the idea was first floated last month.

Details on the new entity and its mandate are yet to be released, but the government hopes the private sector will follow its lead in setting up AMCs next year, promising participants they will do more than just restructuring bad debts, they will be managing bank assets as well.

Statistics from the Ministry of Finance show the aggregate amount of overdue loans in Taiwan's banking system reached NT$930 billion at the end of August.

Since elected in May, the new DPP (Democratic Progressive Party) government has found itself mired in financial difficulties on a national scale, with the stock market crashing and financial scandals emerging.

In a bid to arrest plummeting confidence in investment markets, Yen last week assured investors the possibility of Taiwan having an Asian financial crisis on a local scale is "absolutely zero" and defended the government's decision to bolster the stock market with the National Stabilization Fund if necessary.