Profits to rebound in the second half: Union Bank

Union Bank of Taiwan (聯邦銀行), the nation's fourth-largest issue of credit cards, expects its profits to rebound in the second half of this year from the first, on the back of declining bad debts reserve costs, a bank executive said yesterday.

Monthly profits could recover to between NT$100 million (US$3 million) and NT$200 million in the six months to December, for a total of NT$1.2 billion in the best-case scenario, said Yanger Yang (楊巨昌), the bank's president and the deputy general manager of the business planning and administration department.

Yang's forecast would represent a big leap from earnings of only NT$99 million in the first half of the year when the lender booked provision expenses of NT$3 billion, or an average of NT$500 million per month, to cover bad loans.

His positive outlook also came in a stark contrast to what Fitch Ratings predicted in June when it said that the bank, with its relatively weak capitalization, could "incur a net loss this year due to substantial credit losses in its credit card and cash card business."

"The bank's acquisition of failed Chung Hsin Bank (中興銀行) has yet to produce clear benefits, while its weak capitalization could impede long-term growth for the combined entity," Fitch Ratings said in a statement on June 5.

Union Bank acquired the debt-ridden Chung Hsin Bank in December 2004 for NT$7.1 billion.

Yang yesterday attributed the projected increase in profitability to declining reserve costs in the second half as the bank's consumer bad debt begins to stabilize.

Provisioning last month was NT$260 million, down more than half from the monthly amount in the January-June period, according to the bank.

Union Bank, which saw a high bad debt ratio of 3.37 percent at the end of June, planned to write off and sell some defaulted loans in the second half of the year in the hope of reducing the ratio down to about 3 percent, Yang said.

Apart from a positive outlook for the six months from June to December, Union Bank said it was also considering plans to increase its registered capital.

Union Bank's registered capital is NT$18 billion at present but the lender said it hoped to raise another NT$6 billion, or equivalent to a 25 percent stake, by the end of June next year to improve its asset quality and bring in additional financial know-how and new products.

Asked which investors have expressed interest in the bank's capitalization plan, executive vice president Herman Tu (涂洪茂) declined to name interested buyers but said the bank is currently engaged in talks with three interested foreign investors.

Buyers, once approved, could possibly obtain up to two of Union Bank's nine board seats, Yang said.