Wed, Aug 02, 2006 - Page 12 News List

Shin Kong expects to break even soon

OUT OF THE WOODS The bank said that despite NT$2.2 billion in losses in the first half of the year on bad loans, the worst was over and it would break even this year

By Amber Chung  /  STAFF REPORTER

Shin Kong Bank (新光銀行), the banking arm of Shin Kong Financial Holding Co (新光金控), expects to break even in the second half of this year, despite a heavy loss in the first half brought about by mounting consumer bad debts, the lender said yesterday.

The bank posted a net loss of NT$2.20 billion (US$67.04 million) for the first six months of this year, a 280 percent drop from a year ago, after booking a surging provision expense of NT$3.87 billion, up 162 percent year-on-year, to cover potential bad loans.

Parent Shin Kong Financial, the nation's eighth largest financial group by assets, generated NT$5.90 billion, or around NT$1.32 per share, up slightly from NT$5.14 billion a year earlier, mainly bolstered by its flagship unit Shin Kong Life Insurance Co (新光人壽), one of Taiwan's top three insurers, which contributed profits of NT$8.26 billion.

"We hope to break even in the second half as the worst has passed," Shin Kong Bank's president Lee Tseng-chang (李增昌) told an investor conference yesterday.

The bad debt problem is expected to stabilize in the second half of the year, if the better-than-expected repayment conditions continue, Lee said.

Provision expenses could be cut in half in the meantime, compared with the amount seen in the January-June period, the executive said.

Shin Kong Bank posted a non-performing loan ratio of 2.37 percent and a coverage ratio of 42.53 percent at the end of June.

The lender said that it hoped to maintain a bad debt ratio below 2.5 percent and boost the coverage ratio to 60 percent in the future.

The bank, which stopped issuing new cash cards last November, will exit the market completely next February, transforming the card division into a small loan business that will require a stricter credit check, and refocus on lower-risk lending businesses like corporate lending and home mortgages, Lee said.

Shin Kong Bank is the first bank in the market to decide to terminate the high-yield yet risky cash card business in the wake of the bad debt problem that started afflicting the banking sector in the middle of last year.

"In general, the financial group as a whole performed better than we had thought, despite poor profitability in its banking unit," said Sophia Cheng (程淑芬), head of Taiwan equity research at Merrill Lynch.

With a target share price of NT$40, interested investors can cash in on Shin Kong Financial shares priced at around NT$32, the analyst said.

As for its lucrative insurance business, Shin Kong Financial said it expected to see hedging costs decrease, considering the narrowing interest rate spread with the US as the nation's central bank has been gradually hiking rates.

In addition, a diversity of hedging methods, including proxy hedging and basket hedging, reduced the overall hedging costs to 1.89 percent in the first half from more than 2 percent last year, the company said.

Shin Kong Insurance is slated to roll out its fourth batch of real estate securitization products backed by the three office buildings it owns in the last quarter of this year, it said.

The market expected the derivative to contribute profits of around NT$600 million. Shin Kong Financial closed down 1.91 percent at NT$33.40 on the Taiwan Stock Exchange yesterday.

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