Shares of financial stocks rose yesterday after China’s banking regulator approved four Taiwanese banks to set up branches in China, but analysts said the move would not provide a significant boost to the banks’ earnings in the near term.
The financial and insurance sub-index on the main bourse edged up 7.51 points, or 0.83 percent, to 907.25 points yesterday, compared with a rise of 0.72 percent on the TAIEX, the Taiwan Stock Exchange’s data showed.
The financial and insurance sub-index has risen 24.21 percent from this year’s low of 730.43 points, set on June 9, on positive sentiment toward the cross-strait financial cooperation following the signing of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China on June 29.
“We believe that although it is very likely that the China branches of Taiwanese banks will book profits in the first year by transferring business from their Hong Kong branches, the impact on earnings will be minor over the next three years,” JPMorgan analysts Dexter Hsu (許世德), Penny Lin and Sunil Garg said in a client note yesterday.
“We continue to emphasize our view that opportunities will come from domestic reflation following the ECFA, which should lead to a re-rating of Taiwan banks,” the note said.
The China Banking Regulatory Commission issued a statement on Thursday on its Web site that it approved Chang Hwa Commercial Bank (彰化銀行), Land Bank of Taiwan (土地銀行), First Commercial Bank (第一銀行) and Taiwan Cooperative Bank (合庫銀行) to upgrade their representative offices into branches in China, allowing the lenders to do yuan business with Taiwanese companies after a one-year operating history and recorded profit.
Shares of Chang Hwa rose 3.1 percent to NT$19.90, and Taiwan Cooperative Bank’s increased 1.9 percent to NT$21.50. Shares of First Financial Holding Co (第一金控), parent of First Bank, advanced 1.79 percent to NT$19.85. Land Bank of Taiwan is not listed on the local bourse.
Credit Suisse analyst Chung Hsu (許忠維) said yesterday in a separate report that the Chinese regulator’s approval on Thursday came much earlier than expectations of a period between the fourth quarter and early next year.
However, the Swiss brokerage said these banks would see limited business expansion in China over the next three to four years, citing many remaining restrictions.
Separately, both JPMorgan’s Hsu and Deutsche Bank analyst Nora Hou (侯乃鳳) said Taiwanese banks should be well prepared for the new banking regulations, known as Basel III, after the Financial Supervisory Commission said on Thursday that Taiwan’s 35 domestic lenders would need to raise an additional NT$85 billion (US$2.68 billion) in capital if Basel III were to be implemented today. In particular, state-owned banks would need to raise NT$36 billion.
“We notice large, state-controlled banks are more in need of capital versus their private peers,” Hou said in a report yesterday. “Nevertheless, we believe the actual amount of recapitalization could be much less, owing to a long-enough transition period and banks’ continued earnings improvement.”
Deutsche Bank favors Fubon Financial Holding Co (富邦金控), parent of Taipei Fubon Bank (台北富邦銀行), among local financial stocks because the company is driven mainly by its insurance business rather than banking, Hou said. Fubon Financial rose 1.28 percent to NT$39.6.
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