Local banks saw the credit risk of their overseas branches worsen due to the fallout of the COVID-19 pandemic after reporting US$400 million in potential loan losses as of Thursday, double that of a year earlier, Financial Supervisory Commission (FSC) data showed.
FSC rules stipulate that local banks must report possible losses of US$10 million or higher from corporate loan defaults at their overseas branches.
As the commission only received reports of a possible US$200 million in loan losses from the same period last year, banks this year seem to be encountering higher credit risks amid the COVID-19 pandemic, Banking Bureau Deputy Director-General Lin Chih-chi (林志吉) told a news conference in New Taipei City on Thursday.
Local banks’ overseas branches over the past few years have more aggressively participated in international syndicated loans, leading to a higher risk of bad loans, Lin said.
Since July, eight Taiwanese banks reported a combined loss of US$58 million from a syndicated loan to Indonesia-based PT Tiphone Mobile Indonesia Tbk, a retailer of mobile and prepaid top-up cards, Lin said, adding that the loan lacked any collateral.
In the second quarter, CTBC Bank (中國信託銀行) reported a loss of US$90 million from a syndicated loan to Singapore oil trader Hin Leong Trading Pte Ltd (興隆貿易), corporate data showed.
The FSC has begun to scrutinize banks’ loan defaults, demanding explanations of their lending strategies and risk management, FSC Chairman Huang Tien-mu (黃天牧) told reporters in Taipei yesterday.
Many firms have had financial difficulties during the pandemic, so banks are more likely to see companies with less strong performance have trouble repaying their loans, although local banks have remained overall resilient, Huang said.
The average non-performing loan (NPL) rate of banks’ overseas branches doubled from 0.23 percent as of the end of January to 0.47 percent as of the end of July, while the overall total of loan defaults by foreign branches reached NT$9.95 billion (US$337.22 million) from NT$4.6 billion six months earlier, commission data showed.
Among local banks, CTBC Bank reported the highest losses, with defaults totaling NT$3.1 billion, or 33 percent of the total, the data showed.
CTBC Bank plans to trim targeted lending for its operation in Southeast Asia, where economies have been affected by the pandemic, as well as improve risk management in the region, CTBC president James Chen (陳佳文) told reporters at an event in Taipei.
The profit from overseas branches might decline annually amid rate cuts and the pandemic, Chen added.
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