EnTie's capital reduction plan gains analysts' support

Analysts yesterday praised the decision of EnTie Commercial Bank's (安泰銀行) board to cut the bank's capital by NT$22 billion (US$682 million), or 55.3 percent, to NT$17.8 billion.

The capital reduction proposal, reached at a board meeting on Thursday, still has to be approved by an extraordinary shareholders' meeting on Feb. 20 and the Financial Supervisory Commission, the bank said in a press release.

"After its massive write-off of bad loans, EnTie is expected to bottom out and begin to see growth in the next one to one-and-a-half years," said Alex Huang (黃國偉), an assistant vice president at Mega Securities Co (兆豐證券).

Shares of EnTie dropped 0.48 percent to close at NT$8.3 on the Taiwan Stock Exchange yesterday, compared with the TAIEX's 1.02 percent rise.

EnTie said it planned to write off a total of NT$23.2 billion in losses, including NT$3.9 billion for bad-loan provisions and losses of NT$10.8 billion and NT$5.9 billion last year and in 2006 respectively, the bank's statement said.

EnTie's nonperforming loan (NPL) ratio is expected to improve dramatically from 2.48 percent now after all bad loans are written off, Huang said.

The lender's NPL ratio hit a high 6.82 percent before it received a fund injection of NT$23 billion from US private equity firm Longreach Group last October.

Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's, yesterday also retained its positive outlook on EnTie.

"We don't see the capital reduction plan affecting the bank's financial portfolio and, therefore, maintain our positive rating," said Chun Huang (黃俊榮), an analyst with Taiwan Ratings.

After the completion of the capital injection by Longreach in October, Taiwan Ratings said it expected Entie's overall credit profile to improve "if the bank can effectively transfer upcoming resources, such as new capital, and the introduction of an operational platform upgrade into material benefits."

EnTie's rating, however, may be pressured if the new management pursues an overly aggressive growth strategy or regulatory changes on consumer financing lead to new risks beyond its level of tolerance, Taiwan Ratings said.

It also said that "EnTie's market position is less competitive," with a 1.1 percent share of domestic banking system assets at the end of June.

Huang agreed, saying it remained to be seen if EnTie could post sustainable growth given problems with overbanking.

He said "EnTie will eventually be put up for sale" after Longreach successfully turns the bank around -- a typical practice for most private equity funds that take up financially troubled companies.