NPL plan draws mixed reaction

A government official's idea of establishing a centralized mechanism to auction off the nation's non-performing loans (NPLs) drew mixed reactions from industry experts yesterday, saying that it is too impractical to implement.

The NPL clean-up proposal is expected to help repackage and sell impaired assets more effectively, a financial ministry official said on Thursday at a seminar in Taipei.

"A centralized distribution center, joined by the nation's asset-management companies, should be established to concentrate on evaluating, repackaging and eventually auctioning off the nation's bad loans," said Gary Tseng (曾國烈), director-general of the Bureau of Monetary Affairs.

Pundits yesterday called Tseng's proposal to be well-intentioned, yet impractical.

The government should deal with NPLs more aggressively and close the deal at once, said PFP Legislator who is also a finance professor at National Chengchi University Norman Yin (殷乃平). Unless there is an unfailing supply of NPLs, such a long-term centralized mechanism is doomed to fail because the banking sector may find it hard in the long run to offload mountains of bad debt, he said.

As of June, Taiwan had bad debts of around NT$1.13 trillion, down from NT$1.20 trillion in March, according to the central bank's statistics.

Chen Chung-hsing (陳松興), former president of Taiwan Ratings Corp (中華信評), said he was more concerned about the proposed mechanism's pricing process, because a centralized mechanism would not allow buyers and sellers to bilaterally negotiate prices.

Chen, a senior vice president at Fuh-Hwa Financial Holdings Co (復華金控), said that such a mechanism can only be feasible if the nation's bad-loan market is big enough to maintain a certain economy of scale.

"It will only be feasible if the government uses money from its Financial Restructuring Fund (金融重建基金) to set up a national asset-management company to embody such a mechanism," Chen said.

Tseng urged the Ministry of Economic Affairs at the seminar to revise the insolvency law soon. The law will serve as a legal framework to facilitate corporate restructuring and be another effective way to solve the nation's bad-loan problems.

Yin agreed, saying the outdated law has become a serious hurdle for bankrupt enterprises in reviving their business operations should banks foreclose on their loans.

Efforts by both foreign and domestic asset-management companies to absorb more NPLs in the following year or two suggest a potential business opportunity. Yesterday, Chinatrust Opportunity Investment Co, an asset-management subsidiary of Chinatrust Financial Holding Co (中信金控), said it plans to raise another US$20 million to tap into the region's bad-loan market. Chinatrust Opportunity Investment has US$11 million in assets.

"We hope to soon re-capitalize the asset-management company so as to get ready for grabbing shares in the Asia-Pacific region's huge bad-loan market," Chinatrust financial controller Perry Chang (張明田) said.

Within the next six months to a year, Chinatrust hopes to finally make a decision about whether it will seek a multinational strategic partner, Chang said. He added that Chinatrust is very optimistic about the region's bad-loan market, including Taiwan's NT$200 billion-worth of bad loans that are for sale immediately.

Even one percent of the region's bad-loan market, which amounts to US$50 billion in China, US$1.2 trillion in Japan, US$80 billion in South Korea and US$50 billion in Thailand, will be a big slice of the business pie for Chinatrust, Chang said.