Shinkong posts another month of losses

Shinkong Bank (新光銀行), Shin-kong Financial Holding Co's (新光金控) banking arm, continued to post cumulative net losses last month and may remain in the red this month, due to worse-than-expected credit card bad debts, the lender said yesterday.

Shinkong Bank incurred a net loss of NT$460 million (US$14.18 million) for the first two months of this year, up from a loss of NT$2 million a year earlier, after making provision expenses totaling nearly NT$1 billion over the same period, according to the lender's figures.

The bank, which had a total lending balance of NT$204 billion, saw its non-performing loan ratio increase to 2.61 percent last month, up from 2.42 percent in January, while its coverage ratio kept dropping to 43.3 percent from 46.83 percent.

"The bank could continue to be in the red this month" on expected high provision expenses to cover potentially rising bad debts, Shinkong Financial's deputy chief financial officer Winston Yung (榮覺生) told a briefing yesterday.

"Bad loans on credit cards are growing more than we expected in October last year, when we officially merged with Macoto Bank (誠泰銀行)," Yung added.

The bank is the nation's ninth-biggest credit card issuer, with 1.4 million cards in circulation as of last month.

This could make it difficult for the bank to achieve its previously forecast pre-provision profits of NT$4 billion to NT$5 billion this year, and could also dent its parent financial holding firm's profitability, the executive said.

Shinkong Financial reported net income of NT$6.52 billion, or NT$1.6 per share, for the first two months of this year, and the highest earnings per share (EPS) among the nation's 14 financial groups.

The number of indebted credit and cash cardholders is estimated at 500,000 people, with average bad debt of NT$330,000 each as of January, according to the Financial Supervisory Commission's latest figures, released earlier this week.

Despite their long-term investment value, financial shares bear higher short-term investment risks stemming from inefficient legislation on the spiraling consumer bad debts, Tess Wang (王中秀), an analyst at Yuanta Core Pacific Securities (元大京華證券), said in her latest research note released yesterday.

If the concerns cannot be solved before the year-end mayoral election, financial shares will hover around their current low levels, said Wang, who maintained a "neutral" view of the financial sector.

Wang put a "buy" rating on Shinkong Financial, which is expected to create NT$8.74 billion in net profit, or NT$1.9 per share, this year.

Looking ahead, the financial holding company is seeking partnerships with foreign investors for its flagship life insurance unit and banking business to strengthen its know-how and to expand into overseas markets, Shinkong Financial spokesman Victor Hsu (許澎) said.

Shinkong Life Insurance Co (新光人壽), one of the nation's top three life insurers, has set up a representative office in China and has been looking for local partners, while Shinkong Bank is planning to further expand in Vietnam and Hong Kong, he said.

Shinkong Financial gained 0.2 percent to close at NT$25.65 on the Taiwan Stock Exchange yesterday.