Banks involved in a syndicated loan to lossmaking ProMOS Technologies Inc (茂德科技) are mulling steps to deal with potential default if the nation’s third-largest maker of computer memory chips fails to reverse its finances.
The Hsinchu-based computer memory chipmaker owes more than NT$50 billion (US$1.74 billion) in bank loans to more than 20 state-run and private lenders. It reported a loss of NT$4.26 billion for the first quarter, according to Taiwan Stock Exchange data. As of March, the company accumulated NT$69.85 billion in debt, while owning NT$74.48 billion in assets.
State-run Taiwan Cooperative Bank (TCB, 合作金庫), which has loaned ProMOS more than NT$7 billion in a syndicated loan led by Bank of Taiwan (臺灣銀行), would consider revising lending terms when renewing the contract at the end of the year to better protect its debt, TCB chairman Liu Teng-cheng (劉燈城) said by telephone.
A default by ProMOS two or three years ago would have dealt a serious blow to the banking industry, but would have a limited impact now that the sector has emerged from the global financial crisis with record-high provision funds, Liu said.
The banking sector’s coverage ratio (of provisions over bad loans) rose to a new high of 176.4 percent at the end of April, while the bad loan ratio dropped to a new low of 0.54 percent, according to the latest government statistics.
TCB has set aside provisions for a potential default by ProMOS even though the firm so far has managed to make interest payments regularly, Liu said.
Liu does not expect an easy solution to the ProMOS loan, which is tied to the government’s policy on the DRAM sector.
First Commercial Bank (第一銀行), the flagship unit of state-run First Financial Holding Co (第一金控), said a ProMOS default in the worst-case scenario would not significantly affect its earnings or asset quality.
First Bank’s provision of funds total more than NT$10 billion, which would allow the lender to absorb some of its NT$1.8 billion loan to the technology firm in case of a default, executive vice president Lin Hann-chyi (林漢奇) said.
Mega International Commercial Bank (兆豐國際商銀), the banking arm of state-run Mega Financial Holdings Co (兆豐金控), expressed a similar view.
Mega Bank makes it a policy to set aside provisions of up to 10 percent of loans with companies under its observation list, Mega Financial executive vice president Grace Lin (林瑞雲) said.
All money-losing borrowers are included in the list, Lin said, adding the ratio for ProMOS is higher given its shaky financial situation.
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