Shares of Mega Financial Holdings Co (兆豐金控) ended down 2.13 percent yesterday after its banking unit was not selected to be the clearing bank for New Taiwan dollar transactions in China, dealers said.
Shares of Mega Financial closed at NT$22.95, just off an early low of NT$22.60, while the financial sector fell 0.3 percent and the benchmark TAIEX was down 0.36 percent.
The central bank announced on Monday that the Bank of Taiwan’s (台灣銀行) Shanghai branch had been chosen as the NT dollar clearing bank in China, disappointing many investors who had hoped that Mega International Commercial Bank’s (兆豐國際商銀) Suzhou branch would get the business.
“It was a knee-jerk reaction to the central bank’s announcement yesterday, prompting many investors to cut their holdings in Mega Financial,” Grand Cathay Securities (大華證券) analyst Mars Hsu (徐振家) said.
Taiwan and China signed a memorandum of understanding (MOU) on Aug. 31 to set up a currency clearing mechanism across the Taiwan Strait. Under the MOU, Taiwan was to select a Taiwanese bank which has already opened a branch in China to serve as the NT dollar transaction clearing bank, while China was to choose a Chinese bank to act as the yuan transaction clearing bank in Taiwan.
“As Mega Bank is one of the domestic banks that are good at foreign exchange business, many investors had bet that the bank would be named [the clearing bank],” Hsu said. “I suspect Bank of Taiwan was chosen largely because of its name, which clearly represents Taiwan.”
Hsu said the sale of Mega Financial shares should be short-lived because the setback would not be significant enough to affect the company’s bottom line.
Acting as the clearing bank could earn a financial institution an additional NT$1 billion (US$34 million) a year, but considering that Mega Financial’s paid-in capital is about NT$114.5 billion, not getting the business should not be a big deal to the company, he said.
“The really lucrative business is settling yuan transactions in Taiwan rather than clearing NT dollar transactions in China due to the rising demand for the Chinese currency,” he said.