Thu, Jan 20, 2000 page18

• Pain leads to gain in ODL losses

  FINANCE In preparation for WTO entry and to keep in line with international standards, the finance ministry told banks to cut their overdue loans. They did and feel better for it

  • BY STANLEY CHOU / STAFF REPORTER
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  The pain of last year's massive government-induced overdue loan (ODL) write-off appears to have paid off, according to figures released for December.

  Many commercial banks made significant losses last year after receiving orders from the Ministry of Finance to reduce their ODL ratios.

  A move which led banks to set aside huge reserves over the last few months of the year to tackle the problem.

  Those banks with low ODL ratios have seen an improvement in financial structure and stronger earnings outlooks.

  Figures for December released by 16 of Taiwan's top commercial banks show a vast improvement compared to the previous month, with the ODL average dropping 0.54 of a percentage point to 6.21 percent

  That figure is much higher than the 3.82 percent average recorded by new commercial banks, indicating that these major banks must go a long way before their ODL ratios hit the 2.5 percent target required by the finance ministry within four years.

  Of the 16 commercial banks, the dubious honor of the highest ODL ratio at the end of 1999 went to the Medium Business Bank of Kaohsiung District (高雄中小企銀) with a 20.1 percent ODL ratio, after significant write-offs, a slight fall from the month before. The bank lost NT$3.68 per share last year, also the highest loss among the 16 commercial banks.

  Several other banks with high ODL ratios and significant write-offs last year also generated huge losses. The ODL ratio of Hsinchu International Commercial Bank (新竹國際商銀) was 11.44 percent, the second highest. Hsinchu's earnings dropped 84 percent in 1999, with earnings coming in at only NT$0.23 per share.

  Taitung Business Bank (台東中小企銀) made a big effort to bring its ODL ratio down to 9.77 percent by the end of December from 13.22 percent at the end of November. Its write-offs made the bank lose NT$3.54 per share in 1999. Tainan Business Bank (台南中小企銀) lost NT$1.80 per share last year in its efforts to reduce its ODL from 9.5 percent in November to about 8 percent by year end.

  But the heavy write-offs on overdue loans also brought some good prospects to those banks with low ODL ratios.

  The 1.48 percent ODL ratio of Chiao Tung Bank (交通銀行) at the end of last year was the lowest in the industry. Liang Chen-gin (梁成金), chairman of Chiao Tung Bank, told a stockholder meeting that the EPS of the bank should stay above NT$2.5 over the next three years.

  Chinatrust Commercial Bank (中國信託商銀) made NT$6.1 billion last year, with an ODL ratio of 2.15 percent at year-end. Foreign institutional investors estimate it could make NT$8 billion to NT$9 billion this year, a growth rate of 30 to 50 percent growth.

  Taipei Bank (台北銀行) made NT$2.64 billion in the second half of last year, with an ODL ratio of 2.3 percent at year-end. It managed to achieve 50 percent of its earnings target set until the end of this year. The bank become a privatized commercial bank in July 1999.

  Since the 1998 financial crisis, overdue loans in many commercial banks have increased immensely, especially among the large state-controlled banks, according to banking analysts.

  In order to prevent the situation deteriorating further and ensure they meet the capital adequacy ratio set by the Bank of International Settlement, the finance ministry has taken measures to lower ODL ratios in the banking industry.

  That move is expected to hurt the profitability of the banking industry in the short-run, but will help the industry face fierce competition after Taiwan's entry in WTO, analysts said.
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