State-run Taiwan Cooperative Financial Holding Co (TCFH, 合庫金控) yesterday said that it is assessing the possibility of trimming its profit target for this year, as the operating environment has deteriorated amid the COVID-19 pandemic and because of steep interest rate cuts at home and abroad.
The bank-focused conglomerate had earlier stood by its annual budget, which was proposed late last year, but increasingly deemed it unrealistic after earnings missed expectations in the first half of this year, top-ranking officials said.
“The scenarios upon which the budget was written turned out to be different and challenging because of the global virus outbreak and ultra-low interest rates,” Taiwan Cooperative Financial president Chen Mei-tsu (陳美足) told an online investors’ conference.
The unfavorable situation warrants a review of earnings expectations, which would need approval from the board before being implemented, Chen said.
Pressure to revise the target came after net income shrank 5.21 percent from a year earlier to NT$8.05 billion (US$272.81 million) in the first six months, company data showed.
Taiwan Cooperative Financial’s main subsidiary, Taiwan Cooperative Bank (合庫銀行), reported an 8.22 percent decline in profit during the same period, weighed by lackluster interest and fee incomes, despite a 5.95 percent increase in the loan book, Chen said.
Its lending to small and medium-sized enterprises increased 11.75 percent, while loans to large corporations grew 3.72 percent, company data showed.
The government also expanded lending by 5.09 percent.
However, Taiwan Cooperative Bank’s net interest margin, a critical profit gauge for financial institutions, shed 6 basis points after the central bank cut interest rates to a record low of 1.125 percent and major economies keep their rates near zero or in negative territory.
The COVID-19 outbreak, while mild in Taiwan compared with other nations, wreaked havoc on credit card spending and wealth management business, investor relations officers said.
Bancassurance, insurance policies sold via banking branches, tumbled 48.5 percent as life insurers lowered their liability reserve interest rates in line with regulatory requirements, making insurance policies less attractive, they said.
Taiwan Cooperative Financial would seek to shore up profitability by raising earnings contributions from overseas banking operations, the group said.
“We hope overseas operations may account for 40 percent of overall earnings from the current 27 percent,” a banking executive said.
Higher provisions also subdued earnings ability.
Taiwan Cooperative Bank had NT$2.25 billion in syndicated loans to Far Eastern Air Transport Corp (遠東航空), but is looking to recover significant credit after going through legal procedures, officials said.
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