First Commercial Bank (第一銀行) is scheduled to begin Chinese yuan-based business at its Shanghai branch today, as the bank looks to the overseas market to offset squeezed profitability at home.
The bank’s announcement on Friday came nearly two months after it won approval from the Chinese banking regulator to offer yuan services, such as deposits, loans, foreign exchanges and remittances, in China.
The yuan-denominated transactions will account for at least 70 percent of the Shanghai branch’s revenue, the bank said in a statement on Friday, adding that it expects profitability to grow at the branch thanks to a better interest margin in yuan-based businesses.
First Commercial is the only bank among its Taiwanese peers that showed consistent expansion in net interest margin (NIM), an important barometer of banks’ profitability, in the second half of last year.
Last year, the bank’s NIM increased by 11 basis points, but the margin is forecast to increase by between only five and seven basis points this year, because the low-interest-rate environment may linger for some time, the bank said in March.
“First Commercial could still achieve further improvement in interest margin and interest spread this year compared to its peers, but the magnitude is unlikely to be as strong as last year,” JPMorgan Securities Taiwan Ltd analyst Jemmy Huang (黃聖翔) said in a note on Tuesday.
First Commercial, the banking unit of First Financial Holding Co (第一金控) and a major profit driver for its parent company, opened its Shanghai branch in December 2010.
In China, the bank has also set up a securities brokerage in Shanghai and a leasing business in Shuzhou, while it is waiting for approval from the China Banking Regulatory Commission to open a branch in Chengdu, Sichuan Province, as well as outlets in rural areas of Henan Province.
First Commercial said in November last year that it is planning to open 12 rural banks in Henan over the next few years, aiming to further tap the Chinese market while differentiating itself from other state banks in Taiwan.
Huang said First Commercial’s plan to set up rural banks in Henan would allow it to leverage its expertise in providing loans to small and medium-sized enterprises and allow it to draw on its more than 100-year experience in Taiwan over the nation’s different stages of economic development.
“Such a proactive mindset for new opportunities should enhance its long term profitability, Huang said.
The bank’s improved NIM also gained support from its rising proportion of overseas profit in recent years, with the weight of its overseas profit increasing to 37 percent last year from 29.3 percent in 2011.
The bank’s overseas operations, which underpinned an expansion of 6.2 percent in loans last year, include 15 branches, two sub-branches, two representative offices and one US subsidiary.
Nonetheless, First Financial was the ninth most profitable company among Taiwan’s 15 financial holding firms in the first four months of this year, with net profit of NT$4.08 billion (US$136.8 milion), or earnings per share of NT$0.5.
The company’s shares, closing at NT$18.1 on Friday, have risen only 2.86 percent since the beginning of the year, underperforming the financial sub-index and the benchmark TAIEX by 8 percent and 4 percent respectively, according to Taiwan Stock Exchange data.