Chinatrust dogged by bad debts and write-offs

Worsening banking assets could continue to haunt Chinatrust Financial Holding Co (中信金控), Taiwan's sixth-biggest financial group by assets, in light of an expected increase in write-offs in the fourth quarter, the company said yesterday.

"We did have trouble in the credit card and cash-advance card business... caused by deteriorating asset quality and had booked extra default loans of NT$1.7 billion (US$50.6 million)," Chinatrust Financial's chief finance officer Perry Chang (張明田) told reporters yesterday.

Chinatrust Financial posted pre-tax net income of NT$6.03 billion, up 11.4 percent from the previous quarter, driven by a 10-percent growth in net interest income, a 165-percent increase in profits from derivatives and foreign exchange gains, as well as stable growth in fee income, the company said.

For the first nine months, the company's earnings grew 10 percent year-on-year to NT$14.06 billion, or NT$2.15 per share.

Write-offs

Chinatrust Financial said its provisions for write-offs increased to NT$4 billion in the third quarter, up from of NT$2.37 billion in the second and NT$2.28 billion in the first. Chang said the provisions will continue to rise in the October-December quarter.

Escalating loan pressure generated from highly profitable yet risky credit and cash-advance card business will linger and may not ease off until the second quarter of next year at the latest, he added.

Chinatrust Commercial Bank (中國信託商銀), the financial holding's flagship unit, is the nation's largest credit card issuer with 7.08 million cards in circulation. Its evolving credit amounted to NT$67.46 billion with a non-performing loan ratio of 2.88 percent as of September, according to the Banking Bureau's statistics.

The bank is also the No.3 cash-advance card issuer in Taiwan with 358,854 cards in effect, a lending balance of NT$30.4 billion and a zero-NPL ratio, as Chang said the bank wrote off the debts immediately after they became overdue.

Despite concern over bad loans, the financial conglomerate is confident of creating at least single-digit growth in profits this year from last year's pre-tax net income of NT$20 billion, backed by stable growth of other business such as wealth management and corporate banking, Chang said.

However, an analyst suggested that investors be cautious about the company's shares, due to the currently vague outlook of its weak share price.

Chinatrust Financial shares gained 1.89 percent to close at NT$27 on the Taiwan Stock Exchange yesterday.

"A better time to enter the market would fall in the first quarter of next year after the situation becomes clearer," said Shirley Yang (楊慶祺), a fund manager who manages NT$1.2 billion portfolio, which includes Chinatrust Financial shares, at Invesco Taiwan Ltd (景順投信).

Credit check

So far, Chinatrust Commercial Bank has no plans to follow the example of rivals such as Cathay United Bank (國泰世華銀行) and suspend issuing new cards, Chang said. But the bank will further strengthen its credit check on new card applicants and the collection of receivables, he added.

The bank planned to limit unsecured loans to no more than 20 percent of total lending in an attempt to minimize risks, Chang said.