Cathay Financial Holding Co (國泰金控), the nation's largest financial group by assets, expects profits this year to nearly triple from last year on the shrinking provisioning cost of its banking arm, as the consumer credit abuse storm subsides, the company said yesterday.
"Our estimates for the first-quarter earnings look promising [compared with a loss of NT$2.3 billion (US$69.8 million) in the last quarter of last year]," Cathay Financial spokesman Lee Chang-ken (
Annual profits this year are expected to "rebound strongly" to 2004 levels as the company's banking unit does not need to set aside as much in reserve as it did in the past two years to cover consumer bad loans, Lee said.
Cathay Financial generated earnings of NT$29.85 billion, or NT$3.7 per share, in 2004.
Profitability at its banking arm, Cathay United Bank (
Company profits plummeted last year by over 50 percent to NT$10.74 billion, or NT$1.19 per share, from NT$21.79 billion, or NT$2.57 per share, in 2005.
This weak profitability was the result of a provisioning cost of NT$31.8 billion, up from 20.8 billion year-on-year, to cover deteriorating credit and cash lending assets.
As of last year, the bank had NT$33.3 billion in restructured debts under the credit and cash card debts negotiation scheme. It wrote off a cumulative NT$14.5 billion in restructured loans and booked NT$5.4 billion to cover potential defaulted loans incurred from the remainder.
"These arrangements will help it better prepare itself and the company will face less pressure to set reserves aside to cover for restructured loans than its competitors," said Vincent Chang (
Chang gave Cathay Financial a "buy" rating with a target price of NT$81 and said he saw no reason to downgrade the company for the moment.
Cathay Financial closed 0.96 percent down at NT$72 on the Taiwan Stock Exchange yesterday.
To add momentum to this year's earnings growth, the financial group plans to roll out three batches of securitization products by the first half.
The company filed an application on Monday for the issuance of real estate asset trust worth over NT$4 billion, which it would back with one of its commercial buildings, Lee said.
Its banking arm will also submit applications next month to issue collateralized loan obligations and asset backed commercial papers worth between NT$5 billion and NT$6 billion each, he said.
The money garnered will be used to subsidize its lending business, he added.
The company will apply its dual core strategy in insurance and banking to China and Asian markets like Vietnam for future expansion, the company said.
Cathay Financial, owner of the nation's largest life insurer, invested a life insurance venture of 800 million Chinese yuan (US$103.3 million) in capitalization with state-run China Eastern Airlines Corp (東方航空) in China and set up branches in Shanghai, Nanjing and Hangzhou.
It hopes the authorities will allow its plan to boost capitalization to deal with future expansion, Lee said.
The company has also studied the possibility of investing in the Chinese banking sector and would move to do so as soon as the government lifts the bans, he added.
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