The Chinese Bank shares plummet after insolvencies

The Chinese Bank's (中華銀行) share price plummeted by almost the 7-percent limit yesterday after member firms China Rebar Co (中國力霸) and Chia Hsin Food & Synthetic Fiber Co (嘉新食品化纖) filed for insolvency protection.

The bank's shares closed 6.9 percent lower at NT$3.51 on the Taiwan Stock Exchange yesterday.

In an attempt to reassure investors, The Chinese Bank said in a statement released yesterday that lending to the two companies fully complied with banking regulations and was secured with collaterals.

The two firms that jointly control a 6.9 percent stake in The Chinese Bank had borrowed a total of NT$2.9 billion (US$89.1 million), or only 2.3 percent of the bank's total lending, the statement read.

The cash-strapped bank said it was in intensive talks with potential buyers and planned to complete its NT$10 billion fundraising program by the end of first half.

The Chinese Bank, the nation's fifth largest cash card issuer, is one of the nation's six problematic lenders blacklisted by the government to be taken over if their financial structure continues to deteriorate.

"The bank's asset quality has deteriorated and is below average, mainly because of higher [credit and cash] card delinquencies," the Taiwan Ratings Corp (中華信評) said in its latest ratings report on the bank on Wednesday. The bank's credit ratings were affirmed with a negative outlook, according to Taiwan Ratings.

As of November, the bank had incurred a net loss of NT$4.85 billion with a bad loan ratio of 8.94 percent, far higher than the regulated 2.5 percent.

Its coverage ratio reached 26.42 percent in November, much lower than government requirements of 40 percent, according to the Banking Bureau's latest data.

"We will closely monitor the potential impact [caused by its parent company] and demand them to report handling if necessary," Financial Supervisory Commission Spokesperson Susan Chang (張秀蓮) told a press conference yesterday.

"We actually gave them a tighter deadline [than they claimed] to improve their financial profile through fundraising," Chang added without further elaboration.

The government restructure fund is capable of handling any problems should the bank's situation get any worse, she added.

Meanwhile, China Rebar and Chia Hsin creditor banks said the situation would not impact on profitability as loans are backed by collaterals, with Chang Hwa Bank (彰化銀行) saying that they had booked 100-percent reserve to cover potential loss.