Cathay Financial hurt by bad loans

Cathay Financial Holding Co (國泰金控), the nation's largest financial group by assets, yesterday reported net profits of NT$13.1 billion (US$396.4 million) for the first three quarters of the year, a figure lower than analysts' expectations due to its continued efforts to absorb bad consumer loans.

Its banking unit, Cathay United Bank (國泰世華銀行), reaped net profits of NT$3 billion during the same period, down from NT$9.6 billion a year ago.

"Indicators for the bad consumer loan crisis began showing improvement in June but the impact has not yet completely disappeared," Lee Chang-ken (李長庚), Cathay Financial's chief strategic officer said at an investor conference yesterday.

Cathay United Bank, Taiwan's third-largest credit card issuer, surprised the market late last year by setting aside NT$9 billion to cover potential bad loans.

For the first nine months of the year, it boosted its bad loan reserves to NT$18.2 billion and wrote off bad debts worth NT$22.1 billion, said Joseph Jao (饒世湛), the bank's spokesman and chief senior executive vice president.

Despite that figure, the bank might add to its reserves in the current quarter to clean up its portfolio before the new year, Jao said.

"We will not give up our consumer banking business. But we will focus more on quality, instead of quantity," he said.

Chinatrust Financial Holding Co (中信金控), which owns the nation's largest credit-card issuer Chinatrust Commercial Bank (中國信託商銀), estimated last month that its annual provisioning expenses to cover potential bad loans would increase to NT$36.7 billion this year.

Taishin Financial Holding Co (台新金控) also announced on Tuesday that its bad loan reserves for the first three quarters would skyrocket to NT$30 billion.

Jao said the company would gradually adjust its corporate and consumer banking ratios to equal weight, which accounted for 46.2 percent and 53.8 percent of its business, respectively, between January and September.

Cathay Financial is expected to absorb Taichung-based Lucky Bank (第七商銀) into its banking network on Jan. 1, gaining 32 branches in central Taiwan.

The financial holding firm's flagship subsidiary, Cathay Life Insurance Co (國泰人壽), reported earnings of NT$10.9 billion for the first three quarters, contributing 73.2 percent to Cathay Financial's bottom line.

This represents stable growth as the insurer generated net profits of NT$17.6 billion a year ago thanks to the capital gains of NT$8.6 billion from its No. 1 real estate investment trust (REIT) fund, Lee said.

The insurer has invested 34.7 percent of its working capital for overseas investment, approaching the regulatory cap of 35 percent.

The legislature's Finance Committee is expected to review an amendment to the Insurance Law (保險法) next Thursday that would raise the investment ceiling from 35 percent to 50 percent.