Cathay Financial Holdings, Taiwan's largest financial group, will likely post a fourth-quarter net loss as early as next week after its banking unit wrote off heavy bad loans in the last quarter.
Analysts, however, expect a return to solid profit growth in 2004 after Cathay United Bank wrote off T$6.3 billion (US $187 million) of bad loans, cutting T$5.5 billion from profits.
Cathay Financial bought the United World Chinese Commercial Bank, the island's eleventh largest bank by assets, in late 2002 for US $3.4 billion. UWCCB was officially merged into the tiny Cathay United Bank late last year and the bad loans were written off shortly after.
"The write-off of bad loans probably cut the bank's profit by about T$5.5 billion in the fourth quarter," said SinoPac Securities banking analyst Chu Yu-chun.
A Reuters survey of five analysts said Cathay - anchored by flagship Cathay Life Insurance Co with a 40-percent market share - is likely to post a fourth quarter net loss of T$180 million, swinging from a year-earlier T$6.6 billion profit and a T$7.15 billion profit in the third quarter.
Cathay has already said preliminary figures showed that it just missed its net profit target of T$21 billion in 2003, which would be a 60 percent gain from T$13.1 billion in 2002, but close to the T$20.9 billion earned in the first three quarters of 2003.
Analysts see the banking contribution to profits rising to near half of the holding company's total profits this year, from 35 percent last year.
Reliance Securities Investment Trust banking analyst Richie Su expects Cathay Bank's net profits to exceed T$10 billion this year, which is in line with Cathay's own estimate for a 10 percent rise in group profits to over T$23 billion - nearly half of which will come from its bank.
However, even with the sharp banking loss, Cathay Financial was still the most profitable financial firm in Taiwan last year.
The bank write-off and other restructuring moves have attracted more investors to Cathay shares, which have gained 51 percent since a trough in August, outperforming the main TAIEX index's 20 percent rally.
After the write-off, Cathay United Bank's overdue loan ratio at the end of December fell to 0.87 percent, much better than the around five percent averaged by all Taiwan's domestic banks.
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