Cathay Financial Holding Co (國泰金控) shares rose yesterday after its banking unit decided to tighten up its unsecured loan business in response to the bad loan-dogged consumer banking business.
Shares of Cathay Financial, the nation's largest financial group by assets, closed up 1.84 percent at NT$61 on the Taiwan Stock Exchange.
The Chinese-language Economic Daily News reported yesterday that Cathay Financial's banking arm, Cathay United Bank (國泰世華銀行), would halt unsecured lending -- loans made to individuals without the back-up of collateral.
"We think this is the correct move and we are positive about the decision," said Shirley Yang (楊慶祺), a fund manager who tracks Taiwan's finance sector and helps manage a NT$1.2 billion (US$37.4 million) portfolio at Invesco Taiwan Ltd.
The bank can more accurately examine its asset quality by halting business, Yang said.
"The more thorough the cleanup is, the higher the respect they can earn from the market," she added.
The analyst expected the lender to completely resolve its consumer banking issue by the end of the first quarter following a series of efforts to purify its asset quality.
In response, Cathay United downplayed the reports, saying that they are just tightening the loan granting process by introducing stricter requirements for applicants in future.
Since the amount of any unsecured loan is usually larger than those of credit and cash cards and the interest rates are lower, the bank is planning to readjust its credit business policy, Cathay spokesman Joseph Jao (饒世湛) said.
The loan approval ratio will drop from current range of between 30 to 40 percent, Jao said without specifying how far it would drop.
Given that the bank's unsecured loans only amounted to between NT$10 billion and NT$20 billion, or less than 4 percent of the bank's lending balance, the tightening will not impact on the bank's lending growth, he said.
To contain the impact potential of bad loans caused by consumer banking business, Cathay United set aside NT$9 billion last month as provision after suspending issuance of new cash cards last November. The bank reportedly downsized the organization of its consumer banking unit in the meantime.
Cathay Financial on Tuesday reported a loss of NT$5.56 billion (US$174 million) for the fourth quarter of last year because of the large amount of provision. For the whole of last year, profit was NT$21.7 billion, based on the unaudited figures, compared with NT$29.8 billion in 2004.
Other lenders did not seem interested in following suit.
"As a financial service provider, why would we stop customer services?" said Carol Lai (賴昭吟), chief financial officer of Taishin Financial Holding Co (台新金控), whose banking arm is the nation's largest unsecured loan provider.
"We will be more prudent in granting loans but we will not quit or suspend the business," Lai said. The financial group's banking unit Taishin International Bank (台新銀行) is expected to resolve its mounting consumer bad loans by the end of second quarter, she said.