State-owned Bank of Taiwan (台灣銀行) yesterday said it has won authorization from New Taipei City to issue and sell Treasury bills on its behalf, the first move of its kind by a local government to enhance its finances that may also benefit the bills finance market.
“The move will set a benchmark for more debt issuances by local governments to follow in the future,” the banking arm of state-owned Taiwan Financial Holding Co (台灣金控) said in a statement.
Treasury bills are short-term borrowing instruments that are intended to grant a local government access to new funding at lower costs, the lender said, adding that they have assured yields and negligible risk of default.
Governments on all levels are hesitant to raise tax burdens to avoid estranging voters, but many complain about a lack of funding to carry out large public construction projects due to mounting public debts.
The new venture is a win-win solution for all parties involved, the lender said, as it will generate extra revenue for the bank, as well as local bills finance companies.
The bank is to approach the new business the way the central bank issues government bonds of different tenors on behalf of the Ministry of Finance, through auctions, the lender said.
There will be no physical Treasury bills and the participants will set the yield rates for the first issuance, depending on whether the bills finance companies show strong buying interest after factoring in liquidity in the local money market, the bank said.
With “triple A” credit ratings, Bank of Taiwan is to provide a credit guarantee for the Treasury bills, which should be able to attract active participation, the lender said.
The bank is also to take up the responsibility of securing an underwriter for New Taipei City and help carry out registration, settlement and other procedures with the Taiwan Depository and Clearing Corp (台灣集中保管結算所), the lender said.
The state bank is to take part in the auction, since it also owns qualifications to conduct business in bills finance, the lender said.
The bank has not supplied details on when the auction is to take place or elaborated on the bills’ duration or amount involved, except to say that it is to hold a business briefing for interested bills finance firms tomorrow.
This year, total central government revenue is forecast at NT$1.73 trillion (US$57.4 billion), compared with an expected expenditure of NT$1.94 trillion, leaving a budget deficit of NT$210 billion.
The government was in the red to the tune of NT$174.4 billion last year and recorded a shortfall of NT$214.1 billion in 2012.