FSC proposes cutting reserves quota

Shares of financial stocks led by Fubon Financial Holding Co (富邦金控) jumped yesterday after the nation's financial regulator said it planned to relax regulations on how much after-tax earnings local lenders should set aside as legal reserves.

The Financial Supervisory Commission said on Tuesday night that it would revise the Banking Act (銀行法) to cut the legal reserves banks must set aside by 20 percent down to 10 percent of the after-tax profits they are allowed to pay to shareholders and employees.

Banks are required by Article 50 of the Banking Act to set aside 30 percent of their after-tax earnings as legal reserves for dividend payouts.

Fubon Financial and Yuanta Financial Holdings Co (元大金控), the nation's fourth and fifth-largest financial service providers by assets, were the most active stocks yesterday. Shares of Fubon Financial and Yuanta gained 6.78 percent to NT$31.2 and 4.93 percent to NT$23.4 respectively.

"The relaxed regulation should have a positive impact on local financial companies by giving them more room to utilize their capital either for additional acquisitions or to increase payouts," said Andrew Teng (鄧安瀾), a senior analyst with Taiwan International Securities Corp (金鼎證券).

The FSC said legislators could approve the revision during this session.

The regulator said only companies with stable finances would be eligible for the new rules. More specifically, lenders with capital adequacy ratios of more than 10 percent would benefit from the change, it said.

Financial stocks have been the favorite of investors recently, with turnover reaching NT$28 billion (US$858 million) yesterday, in part because of the appreciation of the New Taiwan dollar, which has led to an increase in assets owned by local financial firms, Teng said.

The NT dollar and other rising Asian currencies have attracted a growing number of overseas fund mangers to Asian markets for investment in assets and stocks, Teng said.

The local currency was unchanged yesterday at NT$32.573 against the US dollar after around rallying by approximately NT$0.5 in the past few trading sessions.

Moreover, local banks could benefit from being able to grant more housing loans, if the real estate market continues to grow, Tseng said.

The FSC is considering allowing local lenders to grant more home loans, in response to requests from local banks and property development firms.

Local banks are capped at granting 30 percent of their total bank deposits and bonds to mortgage loan applicants.

The FSC could exclude loans from property investors from that figure.

As of June, local lenders have granted NT$4.19 trillion -- or 19 percent of total bank deposits and bonds -- in loans, the FSC's statistics showed.

Cathay Financial Holding Co (國泰金控), the nation's biggest financial service provider, rose 1.96 percent to NT$83.4.