Tue, Dec 28, 1999 page18

• Da An Commercial Bank plans to write off NT$2bn

  • By Stanley Chou / STAFF REPORTER
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  While non-performing loans are getting worse in Taiwan's banking industry, Da An Commercial Bank (大安銀行) has decided to rid itself of the mess in one huge write-off -- prompting some analysts to comment that other commercial banks should take similar actions.

  In order to lower its overdue loan ratio, Da An Commercial Bank has decided to write off more than NT$2 billion in non-performing loans before the end of this year. The move will slice its ODL ratio from 4.08 percent to below 2.5 percent. And it would also create a pretax-loss of NT$1.5 billion, or NT$0.95 per share, for the year.

  As a result, Da An Commercial Bank will be the third of the new commercial banks to lower its financial forecast this year, and the first to declare a loss. Its management was reshuffled completely in September, and the new management team has been trying to improve the bank's financial structure since they took the helm.

  Baodao Commercial Bank (寶島銀行) lowered its earnings forecast from NT$1 billion to NT$150 million in October, a drop of 85 percent. Chung Shing Commercial Bank (中興銀行) also cut its earnings forecast from NT$1.89 billion to NT$200 million, a drop of 89.4 percent.

  Executives of Da An estimate that after the massive write-off, it could save as much as NT$300 million in business income taxes, and its pretax earnings-per-share next year could reach NT$1.25.

  The book value of Da An is currently NT$12 per share, and its closing price yesterday was NT$7.1, down NT$0.05.

  Da An executives said the huge write-off this year could make shareholders unhappy. But the non-performing loans must be written off in the next three years anyway, the executives say, as they are required by directives from the Ministry of Finance.

  It's better to write it off all at once, which could improve the financial status of the bank and improve financial results next year.

  Finance ministry officials said the huge write-off by Da An would take courage. But this is how most foreign banks operate when faced with a similar situation, the officials said.

  Industry analysts said now was the best time to write off the non-performing loans, as the move could improve a commercial bank's financial structure. In addition, the share prices of banks have been low recently, and a massive write-off couldn't affect prices too much more.

  If the write-offs were postponed until next year, the delay would probably encounter stronger opposition from the shareholders then.

  Another benefit of a massive write-off is banks can improve their attractiveness as a merger candidate.

  "Whether the possible merger candidate is a domestic or foreign bank, a low ratio on ODL is a must before any merger discussion could be initiated," said K. P. Liu (劉凱平), president of SinoPro Securities Investment Consulting.

  "No one wants to merge with someone with huge non-performing loans, such as a credit cooperative with over 30 or even 50 percent of bad loans in their loan portfolios."
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