Taiwan set aside provisions for RI loans

Taiwan set aside provisions for RI loans

TAIPEI (Dow Jones): Concerned about their exposure to Indonesia, offshore banking units (OBUs) of Taiwanese financial institutions are setting aside provisions to cover these loans, executives at the banks said yesterday.

The Singapore branch of Hua Nan Commercial Bank Ltd., one of the Big Three banks in Taiwan, is planning to set aside about US$20 million at the end of this month to cover loans made to Indonesian companies and banks, an official who declined to be named said.

"It's difficult to say how much will be lost because the Indonesian situation isn't very clear," the official said. "Under Singapore law, we don't need to provide provisions for loans made to government-owned companies. But for private companies, we should provide provisions" totaling 20 percent-50 percent of our total loan portfolio."

Hua Nan's Singapore banking unit has lent about $50 million- $60 million to Indonesian entities, though half is to state-owned enterprises, the official said.

He estimated, however, that the bank has an exposure to Indonesia totaling $100 million, counting lending by other offshore units and the head office.

A large portion of lending to Southeast Asia is done through OBUs of Taiwanese banks.

Another of the Big Three, Chang Hwa Commercial Bank Ltd., is also considering setting aside provisions for its loans to Indonesia, though its exposure is very small, an official at the Singapore OBU said.

"Our exposure in Indonesia is one of the smallest," Tung Chieng Hong, general manager in Singapore, said. "It's only about $1.5 million."

Chang Hwa's exposure is concentrated in a loan made to an Indonesian palm oil producer, PT Pan London Sumatra, Tung said.

"We participated in the syndicate group but it was only a small portion," Tung said. "We also think it's pretty safe," since the loan is longer term, giving the borrower time to repay the debt.

The five-year syndicated loan totaled $230 million and pays a rate of 240 basis points over the London Interbank Offered Rate. Tung said other Taiwanese banks were part of the syndicate group including, Chiao Tung Bank Co.

The Indonesian company has since asked Chang Hwa for more loans, Tung said.

"They hoped to draw more money...but we refused their proposal because the market worsened," Tung said.

Local media reports say First Commercial Bank and Chiao Tung Bank will have to set aside roughly $31 million in provisions against losses on Indonesian loans.