Risk exposure from mainland China falls slightly, says FSC
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.
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.