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Banks can apply to invest in China next week: FSC

Local banks can apply for a permit to invest in Chinese banks as early as next week, a Financial Supervisory Commission (FSC) official said yesterday, following the Cabinet's changes to investment restrictions on Wednesday

"Amendments to the laws involved will be ready and made public within two days, which will allow the commission to handle applications from domestic banks beginning next week," Banking Bureau Deputy Director-General Jong Huey-jen (鍾慧貞) said.

The amendments will allow offshore subsidiaries of domestic banks with between US$6 billion and US$10 billion in assets to acquire up to a 20 percent stake in a Chinese bank.

The commission said the laxer regulation allowed for "strategic investment rather than a controlling stake."

Media speculated yesterday that Fubon Financial Holding Co's (富邦金控) Hong Kong-based subsidiary could seek to acquire 20 percent shares in two Chinese banks, a rumor that Fubon rebutted in a filing to the Taiwan Stock Exchange later yesterday.

Asked by reporters whether a bank would be allowed to take up a 20 percent stake in more than one Chinese bank, Jong said "the commission will evaluate the banks' applications on a case-by-case basis."

"If we find that a Taiwanese bank would take on too high of a risk that could negatively affect its parent company, the commission may ask it to reconsider [the investment] or liquidate part of its shares," she said.

The commission, however, was not opposed to the idea of local banks taking up seats on the boards of Chinese banks, FSC Chief Secretary Austin Chan (詹庭禎) said.

In response to Cathay Financial Holding Co (國泰金控) chief strategy officer Lee Chang-ken's (李長庚) appeal to the Cabinet to let domestic banks invest directly in Chinese banks, Jong said direct investments depended on the establishment of a cross-strait financial regulatory mechanism, which requires negotiations with Beijing.

Twelve Taiwanese banks with offshore subsidiaries in Hong Kong, the US, Vietnam and Thailand will qualify under the new regulations to apply to invest in Chinese banks, the FSC's statistics showed.

However, only the Hong Kong-based subsidiaries of Fubon Financial and the Shanghai Commercial & Savings Bank (上海商業銀行) meet the US$6 billion asset threshold stipulated by China for investment from Hong Kong banks.

The remaining banks with subsidiaries outside of Hong Kong fail to meet Beijing's US$10 billion asset threshold for investment from overseas banks.

Despite the news of the regulation amendments, Fubon shares have dropped 2.38 percent in the past two days and closed at NT$32.8 yesterday.

Analysts were skeptical, saying it could take a long time before any banks could benefit from the change.

Deutsche Bank maintained a "hold" rating on shares of Fubon, with a target price of NT$34.10.

The bank said in a client note yesterday that although Fubon would probably become the first bank to benefit from the relaxed regulations for China-bound investment, a 20 percent stake in a Chinese bank would not significantly boost earnings.

In a client note on Wednesday, Citigroup analyst Bradford Ti (鄭溫煌) offered a "buy" rating for Fubon shares and raised the target price from NT$35 to NT$38, citing continued inflows into the sector and positive expectations boosted by the bank's expected investment in China.

Additional reporting by Kevin Chen
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