Taiwan's non-performing loan (NPL) market is expected to shrink greatly this year, threatening the survival of local and foreign asset management companies (AMCs), a leading commercial real-estate consulting and brokerage firms said yesterday.
"Given the government's goal of lowering the NPL ratio to below 5 percent, there may only be a maximum of NT$158.7 billion NPL to be written off this year," said Cliff So (蘇銳強), assistant vice president of REPro International Inc (瑞普國際物業公司).
Domestic lenders' bad-loan ratio fell to 6.08 percent as of Dec. 31 last year, from 7.87 percent at the end of September, after banks accelerated write-offs of troubled loans, according to the central bank. The ratio hit a peak at 11.53 percent in 2001.
Loans to the value of about NT$885.8 billion were classified as NPL or loans under surveillance, the central bank said. That compares with loans valued at NT$1.12 trillion at the end of September.
If banks can further dispose of NPL of NT$158.7 billion, or 1.09 percent, this year, the 5 percent goal earmarked by the government can easily be reached, So said.
The expected slowdown in NPL sales, therefore, may force several foreign AMCs to leave Taiwan, So said, adding that "at least four multinational AMCs have left Taiwan and relocated to China," where the NPL market may hit US$480 billion.
According to REPro, foreign AMCs bought 72 percent of the NPLs sold in 2002. The company's market share dropped 47 percent a year later when local AMCs entered the market.
During the past two years, stiff competition on NPL sales has driven up the average awarded price from 30 percent of face value in 2002 to 40 percent now, according to REPro.
Despite the supply of NPLs being limited this year, So said that he believes the awarded price will remain at around 40 percent of face value as the demand is still strong, while private treaty sales, instead of public auction deals, will dominate the market.
Before last year, So said that many AMCs have resolved nearly one-third of their NPL acquisition through "discounted payoff" -- a strategy that had little impact on the local property market.
Discounted payoff allows borrowers to settle their loans in lower loan repayment amounts.
However, an expected property market recovery should stimulate AMCs to accelerate resolving NPL acquisition, especially collateral with poor marketability, such as factories in the south, condominiums in central Taiwan and basement retail units, So said.
"The impact on depressed property markets in central and southern Taiwan will increase," So said.
To maintain operations and improve investment return in the next two years, AMCs may shift their focus from limited NPL sales to loan restructures by tapping into corporate restructuring markets.
In doing so, AMCs may target distressed corporations with potential future growth by helping restructure loans or companies to improve their repayment ability, So said.
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