Sat, Oct 28, 2006 - Page 12 News List

Shin Kong predicts continued impact of bad debt

By Amber Chung  /  STAFF REPORTER

Shin Kong Financial Holding Co (新光金控), whose banking unit is deep in the red, said yesterday the company expects the negative impact of consumer bad debt on its banking operations to drag into early next year.

Shin Kong Financial generated earnings of NT$2.33 billion (US$70 million) in the last quarter, compared with a loss of NT$1.25 billion in the first quarter of the year, according to company data released yesterday.

For the first nine months of this year, the company posted profits of NT$8.23 billion, or NT$1.87 per share, the best among the nation's financial holding firms, up from NT$7.13 billion, or NT$2.07 per share, a year ago.

"We are becoming conservative about the situation. The impact of consumer bad loans may continue to linger on to the first quarter of next year," Victor Hsu (許澎), spokesman of the eighth biggest financial group in Taiwan, said on the sidelines of an investor conference yesterday.

The repayment rate under the institution's debt negotiation program currently stands at more than 85 percent, but this may weaken in the future and affect the company's provisioning expense estimate, Shin Kong's deputy chief financial officer Winston Yung (榮覺生) said.

Failing to meet original expectations, Shin Kong Bank (新光銀行) saw a loss of NT$600 million in the July-September period, boosting the bank's deficit to NT$2.80 billion in the first nine months of this year, the data showed.

Shin Kong Bank has booked a provision cost of NT$5.1 billion, up 151 percent from a year ago, to cover potential losses. For the whole year, the lender expects a provision expense of around NT$6 billion, if there are no unforeseen problems.

Aside from the consumer bad loans issue, deteriorating margins are also biting into the bank's bottom line.

Yung expected the bank's net interest margin to further drop by a range of 20 basis points to 30 basis points in the near future from the current level of 2.48 percent, which is already down 3.02 percent on the same period last year.

He attributed the likely decline in net interest margin to factors including price cutting in the housing loans and corporate lending sectors.

Despite the dip in its banking business, Sophia Cheng (程淑芬), head of equity research at Merrill Lynch, remained optimistic about parent Shin Kong Financial.

Cheng attributed her optimism to Shin Kong's lucrative insurance business that can easily offset losses at the banking end. Flagship unit Shin Kong Life Insurance Co (新光人壽), one of the nation's top three life insurers, recorded earnings of NT$10.57 billion in the first nine months.

“The result has exceeded our annual profit forecast,” Cheng said.

Merrill Lynch retained a “buy” rating on Shin Kong Financial with a target price of NT$36. Shin Kong shares closed unchanged at NT$30.20 on the local bourse yesterday.

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