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US firms eye bank's bad loans

"Non-performing loans have been stabilizing in Taiwan after the banks aggressively wrote off their bad loans over the last 18 months."

Terry Chan, director of financial services ratings at Standard & Poor's in Hong Kong

Lehman Brothers Holdings Inc, the fourth-largest US securities firm, and Lone Star Funds, the biggest investor in distressed Asian debt, may bid for about NT$$38 billion (US$1.12 billion) of bad loans held by failed Chung Shing Bank (中興銀行), a Taiwanese government official said.

Cerberus Asia Capital Management LLC and Colony Capital LLC, which is bidding with Lehman, may also try to buy the loans from the lender, which was placed under government supervision after it collapsed three years ago, said an official at Central Deposit Insurance Corp (中央存保公司), who asked not to be identified.

The nation's banks are accelerating bad-loan disposals to meet a government requirement they cut such debt to less than 5 percent of total lending this year. Overseas investors increased bad-loan purchases in Asia in recent years, betting they can profit by reviving the borrowers or selling the loans for a higher price.

Last year, Taiwan's banks wrote off a combined NT$413.9 billion of bad debt and sold NT$153.7 billion of loans, according to the central bank.

"Non-performing loans have been stabilizing in Taiwan after the banks aggressively wrote off their bad loans over the last 18 months," said Terry Chan, director of financial services ratings at Standard & Poor's in Hong Kong. "The bad-loan sales may slow down a bit as banks may prefer to take time to replenish their profitability and capital."

Two local investors, Taiwan Asset Management Corp (台灣金聯) and China Development Asset Management (中華開發資產管理), are also interested in buying the Chung Shing Bank loans, the official said. Candidates have until the third week of December to prepare bids, which will be reviewed by PricewaterhouseCoopers LLP, which is advising the government on the sale.

Land Bank of Taiwan (土地銀行), a state-owned bank, took over the management of Chung Shing in October last year after the government failed in three auctions to sell the lender. Central Deposit Insurance began supervising the lender in 2000 and was used by the government to seize the bank in October 2001 to protect depositors.

Last year, Lehman and Colony bought bad loans with a face value of NT$25.1 billion from Taiwan Business Bank (台灣企銀). Lone Star won an auction to buy bad loans with a face value of NT$23.8 billion from Chang Hwa Commercial Bank (彰化銀行).

In the nine months to September, Taiwan's banks sold NT$43.9 billion of bad loans to asset managers, according to the central bank. As of Sept. 30, non-performing loans at the banks amounted to NT$801.6 billion.

The ratio of bad loans to total lending at the nation's banks fell to 5.6 percent at the end of September from 5.7 percent at the end of June, the central bank said.

Chung Shing plans to sell its remaining NT$50 billion of bad loans for March, the official said.

In August, the government said it is planning a staggered sale of NT$88.5 billion of bad loans held by Chung Shing.
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