E.Sun Financial Holding Co (玉山金控) will be cautious this year about loans to small and medium-sized enterprises (SME), the backbone of Taiwan’s economy, amid the current market uncertainty and global slowdown, a company official said.
“Because of the global crisis, E.Sun has gradually slowed down its SME loans since the second half of last year,” Cathy Kuo (郭怡鷰), head of E.Sun Financial’s investment relationship department, told investors in a conference call on Friday.
E.Sun’s loans to SMEs totaled NT$117.5 billion (US$3.36 billion) last year, up 3.9 percent year-on-year but down sharply from the 57.1 percent rise it recorded in 2007.
“Focusing on SME [lending] is our main policy. We will not change the policy and we still have a positive growth [target] for 2009, even though we are still very cautious about it in the current economy,” Kuo said.
She did not provide a growth target for SME lending for this year.
E.Sun’s SME loans accounted for 22.1 percent of its overall loans last year, company data show.
The company saw its total loans grow only 3.8 percent year-on-year to NT$531.8 billion last year, following an increase of 17.3 percent in 2007, a move that has raised the financial regulator’s attention lately after the government repeated its calls on banks to refrain from tightening lending to businesses during this difficult time.
But the bank has its own profitability concerns.
“The year 2008 is indeed a difficult one for financial institutions,” E.Sun president Joseph Huang (黃男州) said in the conference call. “The recession ... impacted on financial holding companies’ profits.”
E.Sun’s net profit totaled NT$1.03 billion last year, or NT$0.3 in earnings per share. Net revenue totaled NT$14.16 billion last year, which was almost unchanged from NT$14.24 billion in the previous year, according to the company’s balance sheet released on Friday.
While the NT$1.03 billion in earnings was the fifth-highest among all Taiwanese financial holding companies last year, the figure was still a 68.87 percent fall from the NT$3.29 billion profit E.Sun made a year earlier, which Huang attributed to the impacts of higher provisions and operating expenses.
Net provision totaled NT$3.54 billion last year, up from NT$2.18 billion in 2007. Operating expenses were NT$9 billion last year, up from NT$8.1 billion the previous year.
Kuo said the company aims to maintain the same level of profit this year as last year. But that could pose a challenge, considering the shrinking net interest margin (NIM) following the central bank’s series of interest rate cuts.
NIM, which measures lending profitability, is the percentage difference between the interest income a bank earns from loans and investments and its major expenses such as interest paid to depositors. With the central bank’s monetary-easing measures since late September last year, the NIM among local banks has declined steadily.
“The NIM [at E.Sun] is likely to reach the bottom at the second quarter of the year,” Huang said.
The figure is likely to fall to 120 basis points at E.Sun in June after it was at 150 on average for last year, he added.
E.Sun’s net interest income of NT$9.58 billion last year, which made up 67.6 percent of the company’s total net operating revenue, has not changed much from NT$9.53 billion in 2007, the company’s IR manager Anthony Cheng (鄭恩融) said on the conference call.
But net fee income — accounting for 22.9 percent of total net operating revenue — declined 16.3 percent to NT$3.24 billion last year from the previous year, while fee income from wealth management reported a decline of 40.95 percent year-on-year, Cheng said.
Against this backdrop, E.Sun will maintain a conservative stance in banking business this year as well as its merger and acquisition strategy, Huang said.
If there are some proper targets, the company would consider acquiring them, but would focus on the banking industry rather than life insurance companies, he said.
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