"They do have well run financial institutions in Taiwan, but supporting the poorly run institutions, in the long run, we believe, is not good for the economy," Moody's Asia Pacific senior analyst Deborah Schuler told Reuters Television.

Schuler gave a mixed review of the government's new strategy of beefing up banks' bottom lines with tax relief and lower reserve requirements with a mandate that they use the windfall profits to write down bad loans.

"We see that the government is taking temporary measures that make things look good on the surface," Schuler said. "Some of the steps they have taken will decrease costs and therefore increase income to the banking system," she said.

"If this additional income is used to deal with bad loan problems and deal with them quickly, though they appearto be giving the banks a period of time to deal with their problem loans, then that's good news."

Schuler, nonetheless ran off a laundry list of problems that still plague Taiwan's banking system, including management that is often well below international norms, ineffective bankruptcy laws and obstacles to liquidating collateral.

Most conspicuous is a simple oversupply of banks. "There are still too many financial institutions doing too many different things. Some of them are not particularly well run. In fact, many of them are not particularly well run."

Schuler said Taiwan still faced a period of economic difficulty that would force some needed mergers. With just 21 million people, Taiwan has more than 40 domestic banks and more than 46 foreign bank branches.

Of the 16 local banks formed in a 1990s liberalisation, some had not prospered or reached "critical mass" and were top candidates for consolidation, she said, along with the most troubled sector--more than 300 rural creditcooperatives.

Taiwan's "old-line state banks", largely privatised in recent years a state-sponsored push toward the market, must overcome institutional inertia and modernise, she said.

"Typically, hard times often bring about consolidation, but in the banking world, people seldom want to give up ownership of a bank--and do it often only under duress," she said.

"We think there will continue to be some consolidation in Taiwan because there will continue to be some duress."

In November, Moody's downgraded the ratings of 10 Taiwan banks, including its recently privatised "big three" commercial banks, on grounds that Asia's financial crisis was magnifying weaknesses in the banking structure.

On Tuesday, Schuler said the package of bank-relief measures announced by the central bank and finance ministry on Friday appeared to have ignored Moody's structural concerns. "It doesn't address any of the other issues in the banking system that we raised," she said.

Schuler's bank-sector prescription soundedmuch like the one touted by Premier Vincent Siew at the close of a cabinet-led public forum on Taiwan's long-term economic outlook--more transparency, enforcement and structural integrity as well as a consolidation to bolster competition and efficiency.

"Taiwan needs more bank regulators. They need more bank examiners," she said. "To some extent consolidation would make that job easier. There's just an awful lot for a relatively small number of people to cover."