Wed, Aug 23, 2006 - Page 11 News List

Bad loan write-offs soar

TURNING SOUR Banks wrote off NT$67.26 billion in bad credit-card loans during the first half of the year, 40 percent more than the amount written off last year


The E.Sun Financial Holding Co (玉山金控) is only one of many banks struggling to recover from massive credit-card loan defaults, a company executive said.

Over the past few years, local banks exerted little discretion in issuing credit and cash cards in a rush to expand their lending businesses, allowing many consumers to go on buying sprees before eventually defaulting under the yoke of high interest rates.

In the first half of this year, banks wrote off NT$67.26 billion (US$2 billion) worth of credit-card loans that turned sour, exceeding all of last year's write-offs by nearly 40 percent, according to the Financial Supervisory Commission.

"The whole situation has developed somewhat out of our control, especially after the borrowers entered a government-backed debt restructuring program that allow them to negotiate with their lenders," E.Sun president Hou Yung-hsiung (侯永雄) said.

"For April to June we noticed a bigger-than-usual buildup in overdue loans," Hou said in an interview with Dow Jones Newswires.

Under the restructuring program, each borrower negotiates either an interest waiver or a debt reduction with the largest lender. The other lenders will follow the terms worked out by the borrower and the major creditor.

E.Sun is the largest lender for only 1,559 borrowers out of 164,000 people entering the debt restructuring program, Hou said.

The finance company expects to set aside nearly all of its profits this year as provisions for credit-card loans, Hou said.

In the first half of this year, it reported a net loss of NT$1.1 billion after booking NT$4.74 billion in provisions, two-thirds of which were for credit-card loans.

To counter the impact of loan defaults, the company is seeking to raise earnings from its mortgage business, capitalizing on recovery in the property market. Property demand began to pick up two years ago after a long downturn.

The company's wholly owned E.Sun Commercial Bank (玉山銀行), which is the nation's fifth-largest credit-card issuer, is now focusing on mortgage lending.

The bank's outstanding housing loans grew from NT$87.4 billion at the end of 2003 to the current NT$218.7 billion, which is more than half of its lending portfolio.

Housing loans grew up to 40 percent over the past year, and the growth rate is expected to stabilize at about 20 percent for this year and next, Hou said.

With a healthy property market and a growing personal banking business, the finance company hopes its return on equity will return to more "desirable" levels from 2 percent this year, Hou said.

BNP Paribas Securities (Taiwan) Co announced yesterday that it had downgraded E.Sun Financial from "buy" to "hold" as a result of concerns about the company's near-term earnings potential and the long-term profitability of its mortgage-driven growth model.

Lending in the current climate may not be rewarding, BNP Paribas Securities' head of equity research Jesse Wang (王嘉樞) explained.

Additional reporting by Amber Chung

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