The nation’s bond issuer deregulation will benefit local banks and insurers, allowing them to diversify their yuan assets and better match their yuan assets with liabilities, Moody’s Investors Service said yesterday.
“We expect Taiwanese banks to benefit from a yield pick-up on Formosa bonds, which will in turn help boost the margins on their yuan books,” the international ratings agency said in a report.
Taiwanese lenders with large yuan deposits, such as Mega International Commercial Bank (兆豐銀行) and CTBC Bank (中國信託銀行), will benefit the most, Moody’s said.
On Tuesday last week, the Financial Supervisory Commission said that Chinese companies could issue yuan-denominated bonds — known as Formosa bonds — to Taiwan-based institutional investors to help build the nation into an offshore yuan market.
On Wednesday the Hong Kong branch of Bank of Communications (交通銀行) applied to issue 1.2 billion yuan (US$197 million) of three-year and five-year Formosa bonds.
Taiwan has seen steady growth in yuan deposits since the formal establishment of direct yuan and New Taiwan dollar clearing across the Taiwan Strait in February this year. As of the end of October, yuan deposits reached 123.25 billion yuan, compared with yuan loans of 9.52 billion yuan, according to Taiwan central bank data.
Moody’s said the commission’s regulatory easing will allow the nation’s banks to diversify their yuan assets.
Currently, local banks place their excess yuan funds mainly in the interbank market and partially into dim sum bonds, as they have limited options to deploy yuan funds because of China’s capital account restrictions.
“The Formosa bond market will broaden Taiwanese banks’ investment options,” the investors’ service said.
If the commission passes regulations to allow Taiwanese insurers to invest in Formosa bonds, the companies will gain an additional outlet for their yuan-denominated insurance funds and improve their asset-liability management capabilities, Moody’s added.
Qualified Chinese issuers of Formosa bonds include Chinese subsidiaries of Taiwanese-listed companies and banks, Chinese policy banks, state-owned commercial banks and joint-stock commercial banks.