Cosmos Bank (萬泰銀行), the nation’s largest issuer of debit cards, appears to have emerged from a loan default unscathed after Taiwan Ratings Corp (中華信評) reaffirmed its credit ratings despite a steep increase in nonperforming lending.
Shares in the bank ended steady at NT$7.15 on Friday, bucking the TAIEX’s 1.4 percent fall, one day after the Financial Supervisory Commission (FSC) indicated that the lender’s bad loan ratio surged to 3.55 percent in June, from 1.36 percent in May.
That makes Cosmos Bank the only lender with a non--performing loan (NPL) ratio above the 2 percent mark among 37 domestic banks. Based on the commission’s data, the average NPL of the 37 banks fell to 0.48 percent in June from 0.5 percent in May, as the total of bad loans dropped by NT$3.9 billion (US$140 million) from a month earlier to NT$99.5 billion.
Chang Kuo-ming (張國銘), deputy director-general of the commission’s Banking Bureau, said Cosmos Bank faced a bad loan of NT$1.6 billion to the cash-strapped Prince Motor Group (太子汽車) as part of secured lending valued at NT$5.6 billion.
Prince Motor is the local sales agent of Japan’s Suzuki Motor Corp. The company’s chairman, Hsu Sheng-fa (許勝發), is also the founder and former chairman of Cosmos Bank, but relinquished control after selling a combined 80 percent stake to US private equity firm SAC Private Capital Group LLC and GE Money, a unit of General Electric Co, in September 2007.
Prince Motor failed to honor payments in June on a NT$20 billion loan to 30 banks, according to the commission.
Cosmos Bank’s exposure to Prince Motor has not affected its credit profile as Taiwan Ratings, the local arm of Standard & Poor’s, on Friday maintained its “twBBB-” long-term and “twA-3” short-term counterparty credit ratings on the lender.
“Our assessment of Cosmos Bank’s credit profile already factors in the substandard loans and potential credit costs from the bank’s exposure [linked to Prince Motor],” Taiwan Ratings said in a statement.
The ratings agency viewed the bank’s asset quality to be below the domestic industry average as a result of its focus on unsecured consumer lending as well as its substandard loans, the statement said.
As of June, Cosmos Bank had a capital adequacy ratio of 16.02 percent. However, the bank is expected to auction off a plot of land that belongs to Prince Motor in New Taipei City’s (新北市) Tucheng District (土城) worth NT$4.2 billion, which will help lower its bad loan ratio.
The carmaker has filed for permission to convert the plot into a site for commercial and residential properties, thus making it more attractive to potential buyers, local media said.
Cosmos Bank expects to recover the loan fully as it also plans to ask Prince Motor to place a 17-story office building in downtown Taipei back on the market after the previous auction fell through last week.
The building on a 542-ping (1,792m2) plot of land near the intersection of Xinyi Road and Dunhua S Road failed to draw bidders due to development limits, auction organizer DTZ said.