Bank of Communications (交通銀行), one of the top five commercial banks in China, has inaugurated a Taipei branch to boost its presence in the region, even though Taiwan’s low interest rates will constrain earnings, a senior executive said on Monday.
The branch, with US$50 million in working capital, marks the largest direct investment by a Chinese firm since cross-strait restrictions w ere relaxed.
The bank aims to focus first on corporate banking, executive vice president Qian Wenhui (錢文揮) told reporters.
“We may expand into consumer banking and other services if such expansion proves practical and desirable in the future,” he said. “[Extra] funding is not an issue as long as there is a large enough playing field.”
That China is the largest destination for Taiwanese exports, with a trading volume bigger than several other trading partners combined, suggests there is a huge demand for financial services from companies with cross-strait operations, Qian said.
The branch can help customers meet their investment needs and advance cross-border business activities, he said, adding that China-bound Taiwanese tourists and Taiwanese with permanent residence in China are also potential customers.
As of the first quarter, the lender’s assets totaled 4.88 trillion yuan (US$765.75 billion) with a capital adequacy ratio of 12.42 percent and tier 1 capital at 9.39 percent, the company’s financial report showed.
The bank reported 15.88 billion yuan in net profit during the January-to-March period, up 19.58 percent from 13.28 billion yuan a year earlier, the report said.
The figures prove the lender’s financial health, which could be mobilized, if necessary, to prop up the local branch, Qian said.
The bank is scheduled to release its second-quarter earnings next month.
While upbeat about the long-term business outlook in Taiwan, the banker said he was well aware that Taiwan’s thin net interest margin (NIM) might make profit unlikely in the short-term.
Despite two interest rate cuts in the past month, China’s NIM averages at 2.6 percent, compared to Taiwan, where the margin is lower than 1 percent in some cases due to intense competition, Qian said.
“It will take some time for the local branch to turn a profit like other overseas operations,” he said. “Earnings elsewhere may offset losses here … The branch is important in our global service network and I’m confident of its long-term earnings potential.”
Meanwhile, Bank of Communications will seek to boost non-interest income as an ongoing monetary easing cycle squeezes profit for all Chinese lenders, Qian said, painting the impact of the rate cuts as “noticeable, but not harmful.”
The bank is interested in providing currency settlement services once Taiwan and China work out a mechanism, he said.
“We always play the pioneer in reforms linked to the banking sector,” Qian said.