Taiwan-based banks will have to work hard on yuan lending and match yuan liabilities with yuan assets if they want to beat the competition from Hong Kong and reap benefits from the coming yuan operations, Moody’s Investors Service said yesterday.
Starting this month, local lenders will be able to provide yuan-based services, including currency exchange, deposit taking, remittance and lending, plus yuan investment tools, after Taiwan and China worked out clearing regulations.
At present, only local banks’ overseas branches and offshore banking units licensed to serve institutions incorporated overseas or individuals overseas can offer such services.
While the new business promises revenue growth and profits, banks have first to meet challenges, including quick yuan lending, Moody’s analyst Ginger Kao (高玟君) said.
Because a sufficient yuan funding pool is critical to boost yuan lending, banks are keen to build up yuan deposits quickly with help from Taiwan’s trade surplus with China, Kao said.
Bank SinoPac (永豐銀行), Taipei Fubon Commercial Bank Co (台北富邦銀行), E. Sun Commercial Bank (玉山銀行) and local units of DBS Bank (星展銀行), Standard Chartered Bank, Citibank and HSBC have all indicated readiness to enter the new business.
Taiwanese customers’ yuan demands have been largely unmet because of very limited domestic products and services, Kao said.
Taiwan’s corporations will have incentives to maintain yuan deposits for trade settlement purposes with the Chinese currency gaining popularity, Kao said.
However, Taiwan-based banks will have to find channels to digest the yuan because these offshore funds may not flow back to China freely, owing to China’s capital account restrictions, Kao said. Hong Kong also poses a challenge because of its larger market scale, she said.
Lenders with strong trade finance, such as Mega International Commercial Bank (兆豐銀), Chinatrust Commercial Bank (中信銀) and Taipei Fubon Bank, will likely fare better than their peers in yuan operations because many of their customers run businesses across the Taiwan Strait and may need yuan-related services more, Kao said.