Lend Lease Corp, Australia's largest property developer, and Taishin International Bank (台新銀行) said they'll set up a venture to buy and manage bad loans held by Taiwan banks and finance companies.
The venture will buy loans at a discount to their face value and try to profit by collecting from creditors, said Dick Morath, group executive at Sydney-based Lend Lease, which will hold 51 percent of the company.
The agreement comes as a slowing economy hurts industries in Taiwan, raising the number of loan defaults. The government expects Taiwan's economy to shrink 0.4 percent this year, which might prompt banks to sell non-performing loans at discounts as great as 70 percent, said Rachel Wu, the banking analyst at UBS Warburg Securities Ltd (華寶證券) in Taiwan.
As much as NT$1.42 trillion (US$41 billion), or 9.9 percent of total bank lending, was bad -- no interest paid for three months or no principal paid for six -- or in trouble at the end of June, Taiwan's central bank said this month.
That contrasts with an estimate by CLSA Global Emerging Markets that non-performing loans are 15 percent of total credits.
Standard & Poor's said the cost of re-capitalizing the financial system because of rising non-performing loans may be as high as 50 percent of gross domestic product.
Morath said the loan-buying venture will operate for about three years. Lend Lease manages a portfolio of non-performing loans in Japan, Korea and Thailand with a face value of US$6.5 billion, and US$50 billion in assets globally, Morath said.
A resolution of non-performing loans would be helped by passage of a law authorizing asset managers to package them for sale as securities, a draft of which is being prepared by the Ministry of Finance, analysts said.
Taishin dropped NT$0.05, or 0.3 percent, to NT$14.70.
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