Risk ex­po­sure from main­land China falls slightly, says FSC

The China Post - - TAIWAN BUSINESS -

The Fi­nan­cial Su­per­vi­sory Com­mis­sion (FSC, ) said yes­ter­day that lo­cal banks cur­rently have NT$1.75 tril­lion in ex­po­sure to main­land Chi­nese credit, in­vest­ments and in­ter­bank de­posits, a slight decline from the pre­vi­ous quar­ter.

Risk ex­po­sure slipped quar­teron-quar­ter from a ra­tio of 0.68 of the bank­ing sec­tor’s to­tal net worth to 0.67, the reg­u­la­tory body said.

The to­tal risk ex­po­sure in the first quar­ter still falls be­low the FSC’s cap, which is equal to the net worth of all lo­cal banks.

In the first quar­ter, lo­cal lenders with the great­est risk ex­po­sure to main­land China were Mega In­ter­na­tional Com­mer­cial Bank ( ) and the Bank of Tai­wan ( ), fol­lowed by the Taipei Fubon Com­mer­cial Bank ( ).

At the in­di­vid­ual bank level, Fubon’s risk ex­po­sure fell from a ra­tio of 0.93 in the fourth quar­ter of last year to 0.84, while Bank SinoPac’s ( ) ra­tio de­clined from 0.87 to 0.76.

Cool­ing Trend

Over­all, Tai­wanese banks' gross ex­po­sure is on a slight decline and in­di­cates a cool­ing trend, the reg­u­la­tory body re­ported.

The lo­cal bank­ing sys­tem’s ex­po­sure to main­land China has grown rapidly since 2010 due to the FSC’s reg­u­la­tory eas­ing on Chi­nese lend­ing and credit growth across the Tai­wan Strait.

Fitch Rat­ings, in its July 2014 re­port, fore­casts that main­land Chi­nese credit ex­ten­sion will slow in the next few years but be enough to ex­pand the bank­ing sec­tor’s risk ex­po­sure.

It fore­cast that Tai­wan’s risk ex­po­sure to main­land China will dou­ble be­tween 2010 and 2016, and that growth could be­come a down­side rat­ing fac­tor if it is not ac­com­pa­nied by strong prof­itabil­ity and cap­i­tal­iza­tion.

Tai­wan’s re­turn on eq­uity is be­tween 7 and 8 per­cent, which is low com­pared to Hong Kong’s 12 to 13 per­cent that it main­tains de­spite a much higher risk ex­po­sure to main­land China.

Po­ten­tial down­side rat­ings risks are limited in the short-term, but the long-term off­shore op­er­a­tion of Tai­wanese banks may be a chal­lenge, Fitch Rat­ings says.

Ear­lier this month, FSC Chair­man Tseng Ming-chung ( ) had an­nounced that there will be no fur­ther re­lax­ation of lim­its on Tai­wanese lenders’ risk ex­po­sure to main­land China in the near fu­ture.

Over the next few months, reg­u­la­tors are set to strengthen risk su­per­vi­sion, Tseng said.

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