Wed, Jan 25, 2006 - Page 10 News List

Clean-up campaign reduces bad-loan ratio to record low

By Amber Chung  /  STAFF REPORTER

The nation's bad-loan ratio dropped to a record low at the end of last year following the continued efforts of local banks to clear up their bad assets, the Financial Supervisory Commission said yesterday.

As of the last day of last month, the amount of non-performing loans (NPL) held by the nation's 45 local lenders had decreased NT$55.3 billion (US$1.73 billion) from the previous month to total NT$370.5 billion, which in turn dragged the NPL ratio down to a new low of 2.24 percent from 2.61 percent a month earlier, according to the commission's statistics released yesterday.

Local banks have been aggressively cleaning up their bad loans to meet the demands of the financial regulator, otherwise they will face penalties such as restrictions on new financial products.

Chang Hwa Bank (彰化銀行), for example, wrote off over NT$35 billion in bad loans last month alone and Taiwan Business Bank (台灣企銀) also sold NT$12.5 billion of bad loans to asset management companies.

The coverage ratio of local banks that is used to gauge the level of reserves to cover defaults rose significantly to 49.89 percent last month, up from 40.63 percent in November last year, because of the additional provision of NT$11.8 billion and the declining amount of bad loans, the commission said.

The total revolving credit balance shrank for the first time in 15 years by 0.1 percent to NT$494.7 billion last month, after local lenders started to monitor the expanded consumer debts closely under pressure from the regulator and lawmakers.

Against this backdrop, the volume of credit cards in circulation dropped for the third straight month by 0.22 percent to 45.5 million last month. The credit card-related NPL ratio edged up, however, by 0.07 percentage points to 2.44 percent, according to the commission's latest statistics.

The volume of cash-advance cards in use also declined last month for the sixth consecutive month to 3.27 million, down 8.91 percent from November, with the bad loan ratio dropping by 0.44 percentage points to 1.84 percent in the meantime.

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