Mon, Nov 13, 2017 - Page 15 News List

First Commercial reserves millions for Ching Fu debt

COSTLY ACCOUNT:The state-owned bank’s parent said the shipbuilder reneging on a defense contract reduced last month’s earnings by 28.7 percent from September

Staff writer

First Commercial Bank (第一銀行) on Friday said it posted a provisioned expense of NT$600 million (US$19.89 million) last month to cover bad debts in relation to a syndicated loan to troubled Ching Fu Shipbuilding Co (慶富造船).

The state-run bank, a main subsidiary of First Financial Holding Co (第一金控) and the lead bank of a NT$20.5 billion syndicated loan to Ching Fu, said the bad debt expense is likely to further increase by the end of this year, a signal that the move will weigh on profit this quarter.

First Commercial late last month announced that the loan had defaulted due to the Kaohsiung-based shipbuilder’s failure to honor its terms.

Ching Fu has been accused of fraud in connection with a NT$35.8 billion contract to build six minesweepers for the navy.

The bank estimates a potential provisional expense of up to NT$4.55 billion for Ching Fu’s unsecured loan and plans at least 50 percent provisioning, or NT$2.275 billion, against its exposure to Ching Fu this year, meaning that it might book another NT$1.675 billion in bad debt expense this month and next month.

First Commercial’s remarks came after its parent company released its latest financial results earlier the same day.

First Financial reported lower net income last month, mainly dragged down by the banking arm’s bad debt expense, it said in a statement.

Net income fell 28.7 percent to NT$1.129 billion, from NT$1.606 billion in September, with earnings per share (EPS) dropping to NT$0.09 from NT$0.13, First Financial said.

In the first 10 months of the year, cumulative net income totaled NT$16.01 billion, up 10.2 percent year-on-year, with total EPS of NT$1.31 over the period, the company said.

First Financial said its banking subsidiary set aside a total of NT$887 million in bad debt expense last month, the lion’s share of which was accounted for by Ching Fu’s NT$600 million in provision, dragging the unit’s net earnings down by 28.7 percent month-on-month to NT$1.12 billion.

As of last month, the banking unit’s coverage ratio decreased to 485.46 percent and the loan loss reserve ratio increased to 1.23 percent, while its non-performing loan ratio rose 1 basis point to 0.25 percent, First Financial said.

However, the company said that its other subsidiaries, including First Securities Co (第一金證券), First Securities Investment Trust Co (第一金投信) and First Asset Management Co (第一金融資產管理), maintained their earnings stream last month.

First Financial shares closed at NT$19.35 on Friday in Taipei trading. They have dropped about 2.76 percent over the period of a month, underperforming the broader market’s 0.86 percent increase over the same period, Taiwan Stock Exchange data showed.

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