The Financial Supervisory Commission (FSC) yesterday said it is to launch a stress test on domestic lenders’ exposure to China, as many have sought actively to expand across the Taiwan Strait, making them vulnerable to default risks there.
The sector’s exposure to China stood at NT$1.6 trillion (US$52.45 billion) in the first half, translating into 60 percent of its net worth and 4.03 percent of its total assets of NT$39.66 trillion.
The exposure ratio climbed to 65 percent in July, FSC data showed.
While backing a stress test, the nation’s top financial regulator said the exposure was reasonable, since it falls below the 100 percent cap.
Fitch Ratings said in July that the actual exposure to China is higher, because the FSC calculation fails to capture exposure in the form of short-term trade finance, investment-grade interbank placements and loans guaranteed by Taiwanese corporate headquarters.
Short-term trade finance made up between 10 percent and 20 percent of the aggregate exposure and should help raise the exposure to 13 percent in the next two years, Fitch Ratings said.
The international ratings agency advised the FSC to improve risk control and supervision given the sector’s modest capitalization and profitability.
Recurrent cash crunches and rising corporate default risks in China raise concerns that Chinese firms might seek loans from Taiwanese lenders.
Loans to Chinese companies amounted to NT$128 billion, accounting for 0.49 percent of the sector’s total loans, Tseng said.
The figures look modest, but the commission can conduct a quarterly stress test to ensure the sector’s health, FSC Chairman Tseng Ming-tsung (曾銘宗) said.
In addition, the commission plans to conduct a further stress test on the banking industry’s mortgage operations as the macro-environment has grown increasingly unfavorable since the last test in the first half, Tseng said, calling concerns for real-estate exposure more pressing.
The property stress test aims to see if the sector can effectively cope if housing prices fall by 20 to 30 percent and interest rates climb.
Tseng dismissed the idea of terminating lending to Ting Hsin International Group (頂新集團) on grounds that banks might hurt themselves if the food maker goes bankrupt due to a liquidity crunch.
Separately, the Ministry of Finance yesterday said it would advise the nine state-run banks to carefully evaluate scenarios before lending to Chinese firms, despite that their proportion of loans to Chinese companies remains at a relatively low level.
The nation’s state-run banks held a total of NT$50.48 billion in outstanding loans to Chinese companies as of the end of August, less than 1 percent of the total outstanding loans they held, according to ministry data.
Among the total amount of loans, NT$45.6 billion was loans without security, with the other NT$4.7 billion with security, statistics showed.
However, even for those loans without security, state-run banks still protected their creditors’ rights by various methods, with their non-performing loans ratio remaining near zero, the ministry said.
Hua Nan Commercial Bank (華南銀行) topped the list, followed by Mega International Commercial Bank (兆豐國際商銀), both holding more than NT$10 billion in outstanding loans to Chinese companies, with Taiwan Business Bank (台灣企銀) holding the lowest level, statistics showed.
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