Tue, Jul 31, 2007 - Page 12 News List

Debt-ridden banks facing more woes: Taiwan Ratings

By Amber Chung  /  STAFF REPORTER

Weaker local banks are expected to face increasing difficulty in erasing their debts, as the risk premium spread rises, Taiwan Ratings Corp (中華信評) said in a research note released yesterday.

"The collapse of the Rebar Asia Pacific Group [力霸亞太集團] and concerns that the regulator [the Financial Supervisory Commission] may take over more weak banks led the market to increasingly favor more creditworthy institutions in the first half of this year," said Eunice Fan (范維華), an analyst with Taiwan Ratings, the local arm of the US-based Standard & Poor's Ratings Services.

Risk premiums on the issuance of debentures are therefore likely to widen among domestic banks, which in turn will affect debt-raising capacity of weaker lenders and step up their funding costs, Fan said.

According to Taiwan Ratings' statistics, banks rated twAA-, the fourth-highest grade in long-term credit rating that indicates strong credit worthiness, saw their cost of issuing debts decrease by 10 to 20 basis points, while their lower ranked peers saw their cost rise by at least 30 basis points.

After a quiet start, debt issuance is likely to rev up over the second half of the year, Taiwan Ratings said.

Banks have largely been absent from the market since last year, when they aggressively issued subordinated debts to enhance their capitalization before the implementation of Basel II, a new system to gauge banks' financial soundness.

The total issuance of debentures totaled NT$50 billion (US$1.52 billion) in the first half of the year, down from NT$71.5 billion a year ago, Taiwan Raiings' data showed.

Banks are likely to return to the debt market to boost their capital bases and lock in lower interest rates for long-term funding before interest rate hikes expected by the end of the year, the agency said.

Compared with stand alone banks, financial holding firms may be less active in this regard, however, it said.

"Financial holding companies have had little need to raise new debt this year, given the dearth of major merger and acquisition activity in Taiwan's financial sector, and that situation is not likely to change anytime soon," Fan said.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top