Chang Hwa Commercial Bank (彰化銀行), the nation's sixth-biggest lender by assets, said it plans to sell as much as 2.75 billion new shares to overseas and domestic investors to boost capital eroded by bad-loan write-offs, but one stock broker said that it will be a tough sell because of "no profit growth potential" in the banking sector.
The fourth-quarter sale would raise about NT$42.4 billion (US$1.2 billion) based on the lender's current share price. The proceeds will lift the bank's capital adequacy ratio to 12 percent at the end of this year from 8.35 percent last year, senior vice president Miles Chang (張明文) said.
Chang Hwa shares fell NT$0.4, or 2.6 percent, to close at NT$15.2 yesterday on the TAIEX.
Chang Hwa, First Financial Holding Co (
"Share dilution is a fact, but fund-raising is necessary because we want to speed up bad-loan write-offs now, which would lessen our future provisions and in turn boost profitability," Chang said. "If our capital adequacy ratio falls too much, we would face a lot of limitations in our plans to expand."
The 98-year-old bank last year posted a NT$24.7 billion net loss after it wrote off a record NT$45.9 billion of bad loans.
Chang said the sale will ensure the lender posts a profit this year, even as it writes off a further NT$20 billion of loans to pare its non-performing loan ratio to 5.83 percent from 6.97 percent.
Chang Hwa plans to offer as much as 1.4 billion of the shares in the form of global depositary receipts in a private placement overseas, Chang said. It will offer 1.35 billion shares to the public nationwide.
Investors may be reluctant to buy into an industry where lenders wrote off a combined NT$413.9 billion last year.
"Banks have no profit growth potential," said James Tu (
"The bad-loan write-offs are only numerical adjustments. Competition in the lending industry is becoming very intense, and the duplication rate between banks is high," he said.
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