Union Bank to fine-tune structure in quality drive

Union Bank of Taiwan (聯邦銀行), the nation's fourth-largest credit card issuer, plans to adjust its business structure this year to place quality ahead of quantity.

"The financial sector is having a difficult time in this low-margin era, especially after being hard hit by the consumer bad loan problem over the past year," bank president Jeff Lin (林鴻聯) said after a ceremony to mark the bank's 15th year in business yesterday.

"It is therefore important to fine tune the bank's operational direction, and this year we prioritize further developing original customers with savings and assets," said Lin, who took over the presidency in June last year.

With an eye on the potential of the wealth management business, the bank is considering to introduce a new credit card product featuring integrated personal finance management as part of its efforts to double handling fee income in this category from last year, he added.

Union Bank, which was rated "twA-" for long-term and "twA-2" for short-term credit by Taiwan Ratings Corp (中華信評), has established a niche in the nation's consumer banking business.

In the wake of the bad consumer loans crisis, the bank set aside nearly NT$4 billion (US$120 million) last year as provision for possible losses in consumer banking.

This amount is small in comparison to Cathay United Bank's (國泰世華銀行) annual reserves of NT$32 billion, Chinatrust Commercial Bank's (中國信託銀行) NT$47 billion and Taishin International Bank's (台新銀行) around NT$30 billion.

This helped make Union Bank one of just a handful of private banks to post a profit last year. It booked pre-tax earnings of NT$370 million with a bad loan coverage ratio of 38.4 percent, senior executive vice president Lee Hao-sen (李浩森) said.

Over the medium term, the recent stabilization of unsecured consumer loan problems is expected to allow the bank to gradually restore its profitability to the 2003-2004 level, Taiwan Ratings said last month.

To improve its asset quality, Union Bank has tightened its underwriting controls and continued to clean up its impaired assets.

In addition, it expects to boost the coverage ratio to more than 50 percent this year and push the capital adequacy ratio above 10 percent from the current 9.4 percent.

Capital adequacy, also known as the BIS ratio, is a measure of a bank's financial strength, usually expressed as the ratio of its capital to its assets.

The bank's shareholder meeting last year passed a proposal to raise NT$6 billion, equivalent to a 25 percent stake, to improve its asset quality and bring in additional financial know-how and new products.

Although many foreign institutions have expressed interest in the recapitalization plan, the bank is not eager to introduce strategic investors, as it is not in need of capital and refuses to relinquish its management, Lin said.

Shares of Union Bank fell NT$0.03 to NT$9.17 on the Taiwan Stock Exchange yesterday.