Asian lenders may sell more than US$7 billion of bad loans this year, a third higher than last year, according to Ernst & Young, as banks try to meet tougher regulatory standards on disclosure and capital.
Mizuho Holdings Inc, Mitsubishi Tokyo Financial Group Inc, Sumitomo Mitsui Financial Group Inc and other Japanese banks will sell at least US$5 billion of bad loans, said Mark Grinis, managing partner at Ernst & Young in Tokyo. Lenders in Taiwan, the Philippines and other Asian nations may sell US$2 billion, he said.
A decade-long economic slump has left Japanese banks with as much as US$1.25 trillion in bad loans, according to Ernst & Young, whose estimates are about three times greater than Japanese government figures. Japan's Financial Services Agency (FSA) is forcing lenders to more fully account for their bad debt.
"The FSA's increased supervision activities will accelerate banks' disposal of non-performing loans," Grinis, who advises financial institutions on bad loan sales, said in an interview. He said US$5.6 billion of bad loans were sold in Asia last year.
Goldman Sachs Group Inc, Lehman Brothers Holdings Inc, Lone Star Funds, Morgan Stanley and other firms are among potential buyers of such assets. They seek to profit by taking on the loans at a fraction of their face value and collecting from deadbeat borrowers or selling them at a higher price.
Lehman and Lone Star last year were among the overseas buyers of about US$1 billion of bad loans that Taiwan banks sold after the government ordered lenders to clear their non-performing assets.
Taiwan last year set a 5 percent bad loan ratio target for the banks by next year, compared with 10.2 percent as of September.
Taiwan accounted for 18 percent of all bad loan sales last year, with US$1.1 billion sold mostly at auction.
"I expect to see similar volumes in Taiwan this year," Grinis said.
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