State-run First Financial Holdings Co (第一金控) yesterday said that its profitability next year would not be affected by loan that Ching Fu Shipbuilding Co (慶富造船) defaulted on in October.
In light of gains expected from the continuing economic recovery in Taiwan and worldwide and the effect of the cycle of interest rate hikes in the US, losses stemming from the Ching Fu defaults would not directly affect the company’s profitability momentum next year, First Financial’s strategy and planning division deputy head Annie Lee (李淑玲) said during a teleconference.
While First Commercial Bank (第一銀行) — a main subsidiary of First Financial and the lead bank of a NT$20.5 billion (US$683 million) syndicated loan to Ching Fu — would review and overhaul its loan approval process, its lending operations would not be affected significantly, Lee said.
“The Ching Fu case is an isolated event, and the company’s missteps were caused by the stringent precautions required for the government’s armament procurement contracts, which resulted in an asymmetry of information among the participating banks of the syndicated loan,” Lee said.
First Commercial has a total exposure of NT$8.1 billion to Ching Fu and its affiliates.
First Financial has tallied its losses at NT$4.55 billion, saying the amount is expected to be fully provisioned before the end of this year.
Of the NT$4.55 billion, NT$3.55 billion was part of the syndicated loan, while NT$1 billion was part of separate loans extended to Ching Fu.
The bad debt is likely to affect First Financial’s bottom line, an important gauge in determining the holding company’s dividend policy.
After writing off bad debts related to the Ching Fu default, the company might not be able to pay out 80 percent of its earnings as it did last year, Lee said.
However, the company expects to provide a minimum payout of 50 percent, she said.
In the first 10 months of the year, cumulative net income totaled NT$16.01 billion, up 10.2 percent year-on-year, with total earnings per share of NT$1.31 over the period, company data showed.
First Commercial expects to post growth of 4 percent to 5 percent in its loan book next year, mainly driven by improving demand in foreign currency loans in China, Lee said.
Loans to small to medium-sized enterprises are slated to rise between 5 to 6 percent, Lee said, adding that the cycle of interest rate hikes in the US would improve the lender’s net interest margin by about 5 basis points.
Fee income revenue is expected to rise by 6 percent to 7 percent, led by the bank’s wealth management business, Lee added.
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