Taiwan's biggest banks say they are serious about mopping up US$47 billion of bad debt. Some investors say they aren't holding out much hope.
In December 2000, as banks vowed to crack down on past-due loans, analysts said 15 percent of all bank loans were bad, about double government estimates. Now, as First Commercial Bank (
"I won't invest any more in banks -- especially the state-run lenders -- until they've cleaned up their balance sheets," said Bryan Chiang, who helps manage NT$1.8 billion of equities for Invesco Taiwan Ltd (
Though renewed economic growth will bolster bank earnings, few lenders are likely to meet a government target to cut bad loans to 2.5 percent of all loans by June 2003. An index of the nation's banking stocks fell 10 percent during the past 12 months, a period in which the key TAIEX rose 8.5 percent.
The government is prodding banks to merge into fewer, stronger groups, and encouraging banks to create asset management units with advisers such as Goldman Sachs Group Inc and Lehman Brothers Holdings Inc. Yet even some local bankers say they are skeptical of efforts to prevent Taiwan's bad loans ballooning to the levels of nearby economies like China, where at least a quarter of loans are overdue.
"The target is actually impossible for many banks, though not for us," said Huang Feng-i (
Banks are trying to comply. Magnifying the effectiveness of their provisions, in the context of improved earnings, many plan to set aside as much money as they did last year for bad loans.
First Commercial plans to set aside about NT$14 billion against bad loans this year, just shy of the US$14.7 billion it set aside last year, said President Tsai Jer-shyong (
Chang Hwa Chairman Chang Po-shin (
It wrote off NT$11.9 billion in 2001.
Even if banks write off more bad loans, though, they must also clean up their poor lending practices that left almost one in five domestic banks unprofitable last year. Many banks also sank into trouble during a spate of overbuilding in the 1990s that left developers unable to repay loans.
"Corporate lending has been carried on according to a pattern and a tradition in terms of mis-management, in terms of analyzing customers, in terms of managing credit portfolios, which is not up-to-date," said Jan G. Cherim, managing director and head of financial institutions at ING Groep NV, which has insurance and fund management ventures with Chang Hwa.
Banks are trying to clean up their balance sheets before merging with insurers, brokers and trust companies under new laws allowing them to combine under holding companies.
"Many banks have set aside money for bad loans and are cleaning up their balance sheets from last year before they form financial holding companies," said Julian Chen, who helps manage NT$1.1 billion in Taiwan stocks at National Investment Trust.
The write-offs are starting to have an effect. Non-performing loans fell to NT$1.09 trillion at the end of December from NT$1.12 trillion three months earlier.