CTBC Financial Holding Co (中信金控) said yesterday it will not tighten credit offered to LCY Chemical Corp (李長榮化工) unless an investigation into the causes of underground explosions in Greater Kaohsiung last week yields concrete results and affects LCY Chemical’s cash flows.
The bank-focused conglomerate made the statement after the financial sector slumped 2.56 percent at the close of Taipei trading yesterday — deeper than the TAIEX’s 1.93 percent fall — on rising credit risk linked to the Taipei-based chemical company.
CTBC Bank (中信銀行) has NT$430 million (US$14.31 million) in syndicated loans to LCY Chemical, which is suspected to be responsible for the blasts.
“We will not make moves against clients with regular debt payments,” CTBC Financial president Daniel Wu (吳一揆) said before an investors’ conference in Taipei.
LCY Chemical and its affiliated unit, Taiwan Polysilicon Corp (福聚), incurred losses in the first half and may have difficulty honoring debt payments if LCY is found culpable in the disaster that killed at least 28 and injured 292.
JPMorgan Chase & Co issued a credit alert report on Monday saying that Taiwan Polysilicon’s outstanding debts of NT$11.3 billion would turn into bad loans as early as September. LCY Chemical has outstanding debts of NT$10.2 billion, JPMorgan said.
“If loans related to these two entities turn into non-performing loans, the sector-wide bad loan ratio could increase to 0.31 percent, from 0.28 percent in June,” JPMorgan said in the report.
That would translate into earnings erosion of 0.5 percent to 7.3 percent for different banks, assuming a 50 percent-of-loss ratio, JPMorgan said.
Taiwan Polysilicon has been in debt-restructuring negotiations with several creditor banks and may require further capital injection from major shareholder LCY Chemical, which has a 64.9 percent stake, local media said.
E.Sun Commercial Bank (玉山銀行) has the biggest exposure, split between NT$1.36 billion to Taiwan Polysilicon and NT$438 million to LCY Chemical, JPMorgan said.
Taipei Fubon Commercial Bank (北富銀行) also has NT$1.36 billion in exposure to Taiwan Polysilicon, but it does not have exposure to LCY Chemical.
The default risks also threaten Cathay United Bank (國泰世華銀行), Hua Nan Commercial Bank (華南銀行), Mega International Commercial Bank (兆豐銀行) and First Commercial Bank (第一銀行).
Australia and New Zealand Banking Group said the disaster may weaken GDP growth by 0.17 percent this year, as Greater Kaohsiung is home to 30 percent of the nation’s petrochemical industry.
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