Jonathan Epstein, the man in charge of buying non-performing loans backed by real estate for Lehman Brothers Holdings Inc in Asia, has to go where the action is. This year, he's made five trips from Japan to Taiwan.
Taiwan's financial companies will sell as much as NT$350 billion (US$10 billion) in non-performing loans this year, compared with NT$5 billion last year, according to UBS Warburg. Japanese banks, which refused to divulge their bad-loan sales, are selling at a slower pace than last year, investors say.
President Chen Shui-bian (
Taiwan "realizes these transactions are strengthening the financial system," Tokyo-based Epstein said.
Taiwan, which has told banks to trim non-performing loans to less than 5 percent of total lending from 7.5 percent in June, encouraged loan sales by extending the write-off period for loan-losses to five years from one. It also let lenders list loan sales in newspapers, dropping a requirement to notify borrowers individually.
"Taiwan banks feel the pressure to do something about their NPLs," said Marvin Haasan, who runs Lend Lease Corp's bad-loan buying unit in Asia. "Japan has found ways to put things off." Taiwanese Finance Minister Lee Yung-san (李庸三), former chairman of a state-controlled lender, pledged to clean up bad loans when he took office in February.
"Lee Yung-san has said to the banks, `write off or sell your bad loans,'" said Bill Bryson, a partner at Jones, Day, Reavis and Polk, the legal adviser on three Taiwanese bad-loan sales. The administration "had no ownership of the NPLs, making it easier for them to get the problem cleaned up." In Japan, Koizumi, whose approval rating dropped by about 30 points since he took office, may not be able to counter members of his party who want to coddle banks.
LDP policy council chief Taro Aso in January said Japan should inject public money to avert a banking crisis in response to a deposit run at any lender. In July he backed delaying the introduction of a cap on deposit insurance, slated for April, as his party seeks to prop up weak lenders. Koizumi this month told regulators to water down the insurance limit plan.
Japanese regulators will ask banks next month to establish a new type of account that will continue to enjoy unlimited deposit insurance protection after April, the Nikkei English News reported on Sunday.
Japan's seven biggest banks may also be reluctant to spill more red ink by dumping loans after posting a combined ?4.07 trillion (US$34.6 billion) net loss in the year to March. The banks held ?26.8 trillion of bad loans, 49 percent more than the year before, putting them behind pace to comply with regulators' orders to dispose of loans that turn sour in three years.
"The supply of loans for sale in Japan in the last six months has been the lowest since we established our distressed debt business here in 1997," said Sonny Kalsi, in charge of buying bad loans in Asia for Morgan Stanley. "Banks are having a hard time absorbing the losses necessary to sell loans." The Resolution and Collection Corp, charged with buying banks' bad loans, paid more for fewer loans this year as supply shrank. It spent ?23 billion for loans with face value of ?169 billion in the three months to June after paying ?15.5 billion for ?227 billion of loans the quarter before.
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