Shin Kong Bank set to reduce capital

Shin Kong Bank (新光銀行) said yesterday it would cut its capitalization by NT$2 billion (US$61 million) to make up for substantial losses incurred last year and to proceed with its overseas expansion plan.

The capital reduction would reduce the lender's capitalization to NT$19.58 billion and raise its book value per share to NT$10.16 from NT$9.22 after a deficit last year, Hsu Shun-yun (徐順鋆), an assistant vice president of parent Shin Kong Financial Holding Co (新光金控), told a media briefing yesterday.

Shin Kong's capital adequacy ratio -- an indicator used to gauge the capital sufficiency of a bank -- would stand at 12.07 percent, Hsu said.

The capital reduction will take effect sometime in the second half of this year following the approval of the Financial Supervisory Commission (FSC) and will not affect the capital and equity structure of its parent company, he said.

In line with the plan, banks whose value per share dropped to below NT$10 would be restricted from certain business plans, including expansion into overseas markets.

Shin Kong plans to set up a branch in Hong Kong and a representative office in Vietnam and is waiting for approval from regulators in the host countries, Hsu said, without giving a projected timeframe.

The lender incurred losses amounting to NT$7.28 billion last year, after booking extra reserves of NT$4.47 billion, bringing total provisioning costs to NT$10.7 billion amid the consumer credit abuse crisis.

For the first four months of this year, Shin Kong posted earnings of NT$165 million, or NT$0.008 per share, compared with a loss of nearly NT$2 billion the previous year, government data showed.

With a coverage ratio of 70 percent and bad loan ratio of 2.1 percent, the bank said it hopes monthly provisions will remain within NT$200 million this year and that it will focus on low-risk fee income from wealth management business, which contribute NT$70 million every month.

Hsu declined to comment on whether its NT$500 million loan to troubled Ya Hsin Industrial Co (雅新實業), which has applied for restructuring, would complicate its efforts.

Meanwhile, the capital-strapped Cosmos Bank (萬泰銀行), the nation's largest cash card issuer, said it planned to raise as much as NT$15 billion in three stages by the end of this year and NT$12.3 billion by the end of second quarter of next year.

"We will try to get the first NT$5 billion by the end of June as required by the [FCC]," Cosmos spokesman Shih Kung-liang (施坤良) told reporters yesterday.

The fund will be raised in private placement rather than existing shareholders, Shih said, declining to comment on potential investors, including Shin Kong Financial.

The second and final NT$5 billion blocs should be in by the end of September -- by which time the bank should have completed its capital reduction by NT$5.9 billion -- and the end of December, Shih said.

The bank's single-largest shareholder, GE Consumer Financial, won four board seats, including two independent directors, in the annual general meeting yesterday.