Taishin to set aside NT$13bn for bad loans

Taishin International Bank (台新銀行) yesterday decided in a board meeting to set aside NT$13 billion (US$391 million) in the third quarter to cover potential bad loans, the nation's leading cash-advance card issuer said in a statement.

The provision is being made to "strengthen [the bank's] asset quality, lower its non-performing loan (NPL) ratio and boost its coverage ratio," the statement said.

Add in its provisioning expenses earlier this year, the bank will have set aside around NT$30 billion in bad loan reserves for the whole year, the statement said.

"Taking into account all potential bad debts, including those from credit and cash cards, the board hopes [the charges] could improve the bank's financial transparency," said Carol Lai (賴昭吟), chief financial officer of the bank's parent company Taishin Financial Holding Co (台新金控), in the statement.

The bank has also auctioned off NT$15 billion worth of bad debts twice -- in July and September -- this year. However, the board preferred not to book losses from the auction in one time, Lai said. Such losses are expected to affect the lender's profitability by NT$2 billion per annum over the next five years.

The bank has also decided to raise up to NT$8 billion in capital by issuing common shares, which will be completely absorbed by its Taishin Financial, the nation's second-largest financial group by assets.

To strengthen its financial structure, Taishin Financial's board yesterday approved in a separate meeting a proposal to raise NT$4 billion in capital through a private placement.

In February, Newbridge Capital of the US and Nomura Group together invested NT$31 billion for a 26.5 percent stake in Taishin Financial.

Wang Chien-ming (王建民), an analyst at Capital Securities Corp (群益證券), said that Taishin International Bank's decision to set aside new reserves would help improve its asset quality in the short term although this would reduce its net worth, which could be made up for by recapitalization.

"This is something it has to do as it has suffered the most in the wake of the consumer credit crisis," the analyst said.

As of September, Taishin International Bank had an NPL ratio of 7.86 percent for cash cards and the nation's highest cash-card lending balance at NT$59.2 billion, according to the latest government data.

The bank has not issued any new cash cards since May.

As the impact from consumer bad loans is expected to gradually dwindle in the first half of next year, Wang said that the bank is likely to book losses this year and report minor gains next year depending on its bad loan write-offs.

Shares of Taishin Financial closed up NT$0.2 at NT$17.05 on the local exchange yesterday. The two board meetings were convened after the stock market closed.