We also estimate that the local NPL market is about US$40 billion to US$50 billion (NT$1.36 trillion to NT$1.7 trillion).
TT: How many NPLs have you purchased here and what do you do with those bad loans?
McLennan: Lone Star is regionalized into four hubs in Asia including Japan, [South] Korea, China and Taiwan for Asia-Pacific activities. We relocated our headquarters to Taipei from Singapore last April, so we've been in Taiwan 20 months. So far we have acquired a total of NT$100 billion of NPLs via bids and private negotiation, representing a 25 percent market share.
As a management company with expertise in this business, we take the asset and transform it to a productive asset. We either sit down and work it out with the borrower or take it through foreclosure and sell it at a market price to local Taiwanese investors. [Once] through foreclosure, we hold the title to that asset for a while until it's marketable and then sell it to a local Taiwanese investor.
TT: It's hotly-debated whether the size of the Financial Restructuring Fund (金融重建基金) should be expanded to include purchases of NPLs. What do you think?
McLennan: Taiwan doesn't need a traditional RTC [Resolution Trust Corp] fund such as the US and [South] Korea because organized capital is available to immediately invest in NPLs here. Taiwan is in a very fortunate position to have investors lined up to buy its distressed debt. Banks are selling NPLs directly to investors without employing the government as a middleman. The fund should be used for some of the very distressed banks that are insolvent.
TT: What is your view on the nation's economic outlook?
McLennan: Following the global economic recovery, the local economy, which is linked to the US, will also recover. I read a lot in the newspaper that people are saying how the real-estate market here is going to rebound next year. Well, wishful thinking. I think everyone is basing the rebound on the residential market uptick in northern Taiwan, specifically Taipei, which is largely due to low interest rates, and people being allowed to borrow 70 percent of their purchase price and a reduction in the land-value increment tax.
I believe the property market is at or close to the bottom but you need to look at how much commercial real estate has been built recently and how much is coming on line. Just because they build it doesn't mean they'll lease it up. You've got to have the demand, which is not here yet. In general, the market is going to level out next year. And you'll see an uptick in the two years to follow.
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