Taiwan To Allow Larger Chinese Stakes In Domestic Banks

The Taiwanese government has agreed to ease investment caps for Chinese firms looking to buy bigger stakes in local financial institutions, reported AFP on Monday, with both nations keen to improve relations as economic integration deepens.

The Taiwanese government has agreed to ease investment caps for Chinese firms looking to buy bigger stakes in local financial institutions, reported AFP on Monday, with both nations keen to improve relations as economic integration deepens.

According to a joint statement by Taiwan’s Financial Supervisory Commission and China’s Banking Regulatory Commission, individual Chinese banks will be permitted to acquire up to 10 percent of a bank listed in Taiwan, up from five percent; while Chinese companies can also take up 15 percent in unlisted financial institution, and as much as 20 percent of banking units of financial holding companies.

In exchange, the Chinese Banking Regulatory Commission will Taiwanese banks to expand their business into rural areas of the Chinese mainland – under more favourable rules than those of other foreign banks.

The agreement has been described by both sides as a “win-win.”

[quote]”This would help the operation of Taiwan banks in the mainland and facilitate investments in Taiwan by mainland banks and enterprises,” the statement said.[/quote]

Additionally, Chuang Piyen, a Taipei-based banking analyst at Mega Securities, told Bloomberg that the deal would allow Taiwanese banks to capitalise on the Chinese market, after Standard & Poor’s reported in March that Taiwan’s banking sector profitability was “mediocre” compared with its peers in Asia.

[quote]“The development of Taiwan banks has reached a bottleneck in the saturated domestic market as overbanking is a big problem,” said Chuang. “The opportunities to expand business in China will be a driver for its earnings growth.”[/quote]

Taipei and Beijing first signed a package of agreements in 2009 on better cooperation in banking, insurance and securities. However, the removal of restrictions to investments in financial institutions only came last year when Taiwan removed a prohibition put in place since 1949.

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At present, six Taiwanese banks have branches in China while four others have opened up liaison offices there. Two Chinese banks have also set up branches in Taipei while two others have opened up representative offices.

[quote]”Cathay Financial, Chinatrust Financial and Ta Chong Bank, which is controlled by the Carlyle Group, and some other smaller banks could attract Chinese interest,” said Albert Hsieh, an assistant vice president at Shinkong Asset Management Co, to Reuters.[/quote]

The higher investment cap will take effect as soon as possible, added Kuei Hsien-Nung, director general of Taiwan’s Financial Supervisory Commission banking bureau, noting that political and economic ties have improved since Ma Ying-jeou became Taiwan’s president in 2008 on a China-friendly platform.