First Financial Holding Co (第一金控) saw its net income decline 4.8 percent in the first six months of the year due to higher provisioning costs, while expansion plans in China have hit a snag unless the cross-strait trade service pact clears the legislature, executives said yesterday.
The state-run conglomerate posted NT$6.36 billion (US$211.6 million) in net profit during the January-to-June period, down 4.8 percent from a year earlier, as its main subsidiary, First Commercial Bank (第一銀行), raised provision against souring loans to Taiwan Maritime Transportation Co (TMT, 台灣海陸運輸), a bulk shipper and energy transportation firm, and LED chip manufacturer Chi Mei Lighting Technology Corp (奇力光電).
The lender has exposures of NT$3.5 billion and NT$950 million to TMT and Chi Mei Lighting respectively, First Financial head of investor relations Annie Lee (李淑玲) told an investors’ conference.
First Commercial has set aside provision of 36 percent for the TMT loan and 10 percent for Chi Mei’s, and plans to increase the reserve to 50 percent and 70 percent later this year, Lee said.
The extra provisioning will continue to constrain the bank’s earnings, which accounted for 96.6 percent of the group’s profit in the first half of the year, but better-than-expected write-backs will help buffer the impact, Lee said.
Bad loan recoveries increased 10.7 percent to NT$1.97 billion as of June, nearly approaching the target of NT$2 billion for the whole of this year, she said.
However, the bank has no intention of lifting its write-back target, as the strong performance is unlikely to extend into the second half, Lee said.
Several investments also weighed on the bank in the first half from the same period a year ago, as gains on short-term investment contracted 0.9 percent, gains on long-term investment slipped 0.7 percent and gains on financial products lost 1.2 percent, according to First Financial’s report.
The bank-focused group managed to increase its loan book by 3 percent and hold net interest margin steady at 1.26 percent, the report showed.
The conglomerate is looking for modest pickup in core businesses as firms may be slightly more optimism with the advent of the high sales season for technology products, Lee said.
“We expect stronger demand for foreign currency loans from companies with operations in China,” she said. “The US plans to scale back its quantitative easing may drive corporate customers to lock up loans at low borrowing costs.”
First Financial has made no progress in setting up banks in rural China, although it remains excited about the prospect of doing so once the cross-strait service trade pact is approved.
However, it has not reached an agreement with British partner Aviva PLC over the fate of First-Aviva Life Insurance Co (第一英傑華人壽) after the British insurer said it would exit the local market.
Shares in First Financial closed down 0.29 percent to NT$17.1 yesterday, better than the TAIEX, which lost 0.94 percent, Taiwan Stock Exchange data showed.