Shares of Mega Financial Holding Co (兆豐金控) climbed higher than the peer average yesterday, after the state-run conglomerate announced a day earlier that yuan operations at its banking subsidiary would begin today.
Mega Financial closed up 1.4 percent at NT$25.35, outpacing the financial sub-index’s 1.33 percent advance, Taiwan Stock Exchange data showed.
The firm’s banking arm, Mega International Commercial Bank (兆豐銀), was the first domestic lender to win regulatory approval to offer yuan services as part of a government effort to develop Taiwan into the world’s yuan offshore banking hub.
Mega Bank’s offshore banking unit is authorized to absorb deposits and approve loans in yuan, as well as provide yuan conversion and remittance services amid growing demand for the Chinese currency, the lender said in a statement.
“That opening will allow customers to save on foreign currency exchange and hedging costs,” the statement said.
Currently, the operations are limited to Taiwanese banks’ branches in Hong Kong. Branches in China need to prove profitable one year after their establishment before they can apply to conduct yuan business.
Capital Securities Corp (群益證券) analyst Alan Tseng (曾炎裕) cautioned that while yuan operations were a positive for Mega Bank and other peers awaiting regulatory approval, they would generate very limited earnings in the near term.
“That explained why financial shares have taken a backseat of late,” underperforming the TAIEX’s 1.79 percent rebound yesterday, Tseng said by telephone.
Mega Bank expects the deregulation to lift overall foreign currency operations, as evidenced by the surge in yuan deposits at its Hong Kong branch, which saw 30 to 40 percent of foreign currency deposits converted into yuan, the statement said.
Firms and individuals are increasing yuan holdings both to meet asset allocation needs and to profit as the yuan is expected to strengthen against the greenback, given a sluggish US economy and China’s strong GDP growth.
Mega Bank aims to boost its total foreign currency operations to US$600 billion this year.
Mega Financial posted a net profit of NT$9.52 billion (US$328 million) in the first half, rising 24.12 percent from the same period last year and translating into earnings of NT$0.84 per share, company data showed
Mega Financial executive vice president Grace Lin (林瑞雲) attributed the increase to recognition of profits valued at NT$1.1 billion from selling two real-estate properties in the second quarter.