Eight banks to auction collateral

In a bid to accelerate a clean-up of their balance sheets, eight domestic banks have decided to auction off collateral from non-performing loans (NPL), hiring DTZ Debenham Tie Leung (戴德梁行) to manage the sale on June 1 in Taichung.

Eighty-five housing units in central Taiwan -- namely Taichung, Changhwa, Nantou, Hsinchu and Miaoli -- are expected to be sold off, with an aggregate floor price of NT$357.22 million set by the banks, said Allen Hsu (徐鳳麟), manager of DTZ's commercial department.

Troubled financial institutions have been rushing to write off their bad loans at the prompting of the Ministry of Finance. The ministry wants them to reduce their NPL ratio to below 5 percent within the next two years. Over NT$500 billion of Taiwan's NPLs are collateralized with real estate.

"Since we began our first property auction with Citibank on July 28 of last year in Tainan, we have managed 12 auctions," Hsu said. "Overall, we have sold 288 housing units, with total sales of NT$532 million."

The central bank estimates that NT$1.65 trillion, or 11 percent of bank loans in Taiwan, were non-performing or in danger of default as of December.

"A few banks have contacted us recently, saying they are interested in participating in upcoming auctions," said Wendy Hsueh (薛惠珍), director of DTZ's research and consultancy department.

Hsueh said the state-run Chang Hwa Bank (彰化銀行) and United World Chinese Commercial Bank (世華銀行) will join the June 1 auction for the first time.

The other six banks are Taishin International Bank (台新銀行), EnTie Commercial Bank (安泰銀行), Ta Chong Bank Ltd (大眾銀行), Jih Sun Bank (日盛 銀行), Shanghai Commercial & Savings Bank Ltd (上海銀行) and Grand Commercial Bank (萬通銀行), she said.

DTZ has sold off one housing unit every five minutes in recent auctions, with prices reaching as high as 20 percent above floor prices.

While the auction price of each property site was roughly 70 percent of its market price, according to DTZ, the figure was much higher than what it would be by selling the real estate to asset management companies, said James Jeng (鄭建中), a researcher at Grand Commercial's credit claims department.

"Generally speaking, asset management companies are skillful in shopping for bargains while purchasing bad loans from the banks," Jeng said.

Grand Commercial, which will take part in the DTZ-organized auction for the second time since last month, is scheduled to sell two housing units in Taichung's commercial district, with floor prices of NT$10.1 million and NT$8.38 million respectively.

To improve their asset quality, banks should try to dispose of their bad collateral, Jeng said.

But Hsieh Chao-nan (謝昭南), executive vice president of Chang Hwa, said selling off problem collateral actually will not help banks recover a sizeable portion of their bad loans.

Chang Hwa, which reported that its NPL ratio edged down to 9.39 percent in April from 9.43 percent in March, is planning to write off NT$10 billion in bad loans this year and will shift some loans to asset management companies.

The bank will auction off 12 properties in Taichung, Changhua, Hsinchu and Nantou during the June 1 auction, for a total floor price of NT$124.92 million.

"You can see the figure is not that big, but we want to get some experience [through the auction]. We believe it is another option that we can resort to when writing off our bad loans," Hsieh said.