06.07.2001
Industry's overdue loan ratio up during 1Q01

• The government released 1Q01 overdue loan ratio figures for banks that now include community financial institutions. Community Financial Institutions include credit cooperatives, farmers and fishermen associations. The ratio increased 64bps to 6.84% from December 2000. Excluding banks, the ratio for community financial institutions increased to a historical high of 17.19%, from 15.68% from December 00 until present. Total overdue loans for financial institutions during 1Q01 reached NT$1.1trillion.

• The government hopes to tackle the overdue loan problem by setting up a Resolution Trust Company (RTC) with capital of NT$140bn. This proposal will provide relief for financial institutions. Further, the Financial Holding Company Law is also expected to help buffer the overdue loan problem by allowing finance institutions to diversify into new businesses. However, this law along with the RTC awaits approval from the Yuan legislative committee.

• VB Primasia Opinion: We feel the overdue loan ratio will continue to increase due to the economic downturn. With the effectiveness of RTC yet to be seen, we suggest investors should avoid banks with high overdue loan ratios. However, we expect enactment of the Financial Holding Company Law to allow some of the higher quality financial institutions to expand into other businesses such as insurance and security.

WilliamFong@Primasia.com +886-[0]2-2547-8864