dc.description.abstract | Abstract
Bank plays an important role in the national economic system. Its policy drives the economic growth, yet ill-determined loans would damage the economy. Domestic banks in Taiwan have been suffering from dead loans over the past few years, thus, the financial corporations are forced to review their definition of goals, as well the completeness of the risk management system. Banks feed the public’s savings to supply loans, hence, their social responsibilities are self-evident and risk management policies required careful execution.
Credit check, loan approval, appropriation, and claim for non-performing loans are all important risk management segments. The study on recovery rate discussed the last segment of the risk management. The factors affecting the recovery rate and empirical results were provided as guidelines on policy making, preparation for bad debt, collateral appraisal, forecast loss, loan pricing, calculation of risk value.
The purpose of this study is to discuss the following three topics: 1) factors affecting recovery rate; 2) cross analysis on the abovementioned factors; 3) the difference between the recovery rate of new and old banks. Case study and empirical study were conducted.
The case study analyzed the loan background of an electronics company that attributed to infringement of the contract, and the factors affecting the recovery rate. Lastly, detailed discussion on the recovery rate of various banks was provided.
The empirical study focused on the recovery rate of Bank A, provided 146 companies and 223 cases of non-performing loans from 1992 to 2002. The average values and variant analysis were conducted to examine the effect of industry, credit usage ratio, loan period, overall economy, the liability ratio, and credit status of the company on recovery rate. The difference between the recovery rate of new and old banks was discussed.
The results of the empirical study classified factors affecting the recovery rate into three groups: 1) the characteristics of the debtor; 2) the influence of the external environment; 3) loan conditions (collateral or loan period). The most influential factor was the collateral, of which the recovery rate for real estate was the highest at 48.24%, followed by medium to small trust fund at 36.88%, machinery at 21.91%, check receivable at 7.8%, and no collateral at 8.9%. The evaluation of the debtor’s characteristics, rating, and liability showed that the recovery rate of those rated 60 or above at 26.6%, followed by below 60 at 21.87%. The recovery rate of those with liability ratio of 100% or below was 27.3%, over 100% was 21.02%. Under the external economic influence, based on line of division at 1997 Asian Financial Crisis, the recovery rate before 1997 was 30.53%, and after 1997 was 16.26%. Based on the up
and down trend of Taiwan Weighted, the recovery rate in upward trend was 24.29%, and in downward trend was 19.82%.
In comparison of new and old banks, Industrial Taiwan of Taiwan had the highest recovery rate amongst old banks because of its requirement on collaterals, namely factory buildings. Based on different sample cases, the recovery rate for Chiao Tung Bank (21 cases) was 45%, Chang Hua Bank (40 cases) was 47%, Bank of Taiwan (19 cases) was 18%, First Bank (48 cases) was 37%. For the new banks, the recovery rate for Cosmos Bank (20 cases) was 22%, Pan Asian Bank (16 cases) was 10%, Tai Shin Bank (10 cases) was 11%, Entie Commercial Bank (9 cases) was 0%, and Chung Shing Bank (25 cases) was 17%. | en_US |