Mon, Dec 27, 1999 page1

• Banks face huge losses on dud loans

  FINANCIAL SYSTEM Total write-offs for bad or non-performing loans are projected to reach some NT$100 billion this year, a record for Taiwan

  • By Stanley Chou / STAFF REPORTER
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  Write-offs for non-performing loans could well exceed NT$100 billion this year, a new record for Taiwan's banking industry, according to information released recently.

  Taiwan Cooperative Bank (合作金庫) is expected to top the list with NT$15 billion in write-offs. Chung Hsing Commercial Bank (中興商銀), meanwhile, will likely be top among the 16 new commercial banks at NT$4.5 billion.

  According to information disclosed by Taiwan's seven major banks (七大行庫) and 16 new commercial banks, their combined total write-off of non-performing loans is expected to be at least NT$79.57 billion in 1999. Put this together with 29 other banks in the financial sector and the total will easily pass NT$100 billion this year.

  Analysts attributed the reasons for the huge write-offs this year to an economic recession in recent years and the 921 earthquake in September.

  Earlier this year, the Ministry of Finance instructed the banking industry to reduce overdue loan ratios across the board. As a result, most banks will report much lower earnings -- if not losses -- this year.

  Last year, while the regional economy languished, most banks suffered from the so-called "land mine share" effect, bank executives said. As a result, some major banks saw as much as NT$20 billion in non-performing loans from listed companies who encountered financial difficulties. A number of smaller banks also suffered NT$2 billion to NT$3 billion in losses. The quake simply compounded the problem.

  Because of the finance ministry's instructions to lower over-due loan ratios earlier this year, ratios at year-end should be lower than those recorded at the end of April. They must also be as low as 2.5 percent within four years. Reducing the ratios has, there-fore, become a priority for the industry this year.

  The NT$15 billion write-off for the Taiwan Cooperative Bank, represents about three years' earnings for a large commercial bank.

  Analysts said the size of the bad loan write-offs for some commercial banks this year will include accumulated bad loans from previous years. One-time write-offs will surely raise the dollar figures significantly, damaging their financial results for the year.

  Some analysts said the unusually high amounts of non-performing loans at several new commercial banks may be attributed to the interference of major stockholders in lending decisions, coupled with other economic factors.

  For example, the credit policy at Chung Hsing Commercial Bank and Da An Commercial Bank are widely believed to have been strongly influenced by their major stockholders. Also, since the KMT took a controlling stake in Pan Asia Bank earlier this year, major shareholders have apparently intervened aggressively in the bank's lending policies.

  Other commercial banks that are run by professional managers, and whose loan policy has seldom been affected by stockholders, such as E. Sun Bank (玉山商銀) and Bank SinoPac (華信商銀), have much lower overdue loan ratios. The bad loan write-offs for these two banks are among the lowest in the industry this year.
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