Thu, May 15, 2003 - Page 11 News List

Bad-loan ratio could grow due to SARS outbreak: S&P

BLOOMBERG AND CNA , TAIPEI

Domestic banks' bad loans may increase "slightly" as SARS cuts into consumer spending and slows business growth, hurting borrowers' ability to repay, Standard & Poor's said.

The rating company estimates the ratio of non-performing loans to total loans at 13 percent as of December, said Ryan Tsang (曾宜景), director of financial services ratings at S&P.

That's more than the central bank's figure of 8.9 percent, which includes bad debt as well as loans at risk of default.

"The impact [of SARS] on consumer confidence and business activities is likely to be temporary," Tsang said. "The increase in new NPLs is likely to slow down, notwithstanding the impact of SARS."

Domestic lenders wrote off a combined NT$413.9 billion (US$11.9 billion) last year in a government-driven cleanup of bad loans, the legacy of a decade-long slump in the nation's property market.

Excluding loans at risk of default and under surveillance, the non-performing loan-ratio stood at 6.1 percent, the central bank said in February.

About NT$1.25 trillion (US$36 billion) of loans were classified by the central bank as non-performing or at risk of turning sour at the end of December.

The Ministry of Finance said on May 9 it will allow companies that have loans coming due this year to delay payment by 12 months, helping them cope with losses resulting from the outbreak of SARS.

Meanwhile, S&P said Taiwan's commercial banks are likely to outpace their Japanese counterparts in their ongoing attempts at reform.

In a new publication entitled Taiwan Banking Outlook 2003, the ratings agency said that the nation's banks have an edge over their counterparts in Japan in terms of capitalization.

The banks and their regulators appear to be moving more swiftly than their Japanese counterparts in terms of emerging from denial and facing their respective challenges, the report said.

The report warned, however, that increasing attempts by the banks to market unsecured consumer credit products, such as credit cards and cash cards, could represent a stumbling block if risks are not properly priced and managed.

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