Banks vow again to shed bad debt

Other banks planning an assault on bad loans include Taiwan Business Bank (台灣企銀), which may write off up to NT$6 billion this year, and Chiao Tung Bank, which will use the proceeds from equity investment gains and sales of subordinated debt to cap write-offs at last year's level of NT$8 billion.

"This year's economic conditions seem to be better and we have cleared quite a significant amount of bad loans," said Perry Chang (張明田), senior vice president of Chinatrust Commercial Bank (中國信託銀行), where 2.9 percent of loans were classified as bad as of December. The lender will set aside NT$11 billion in provisions, less than last year's NT$14 billion.

United World Chinese Bank (世華銀行) plans to set aside NT$6 billion against bad loans, while Taishin Financial Holdings Co (台新金控), which took over Dah An Commercial Bank (大安銀行) and started trading as a financial holding company in February, expects to write off about NT$19 billion of bad loans this year.

Still, analysts warn more loans may go bad. The economy shrank 1.91 percent last year, isn't expected to expand by more than 2.29 percent this year.

Because banks aren't setting aside enough money, "the industry's NPLs will indeed rise," said Andrew Chen, a Nomura Holdings Inc analyst in Taipei. "We are looking at a recovery in the second half. Non-performing loan ratios are a lagging indicator."