The Cabinet yesterday approved a proposed amendment to the Banking Act (銀行法) in a bid to encourage banks to issue debentures and improve investment sentiment.
The amendment was drafted after the Financial Supervisory Commission (FSC) unveiled a plan earlier this year calling on domestic financial institutions to diversify.
Under the amendment, which will be sent to the legislature for approval, the government will allow local banks to issue short-term debentures of under two years duration.
Banks will also be permitted to use the funds raised by debenture issuance for investment or as underlying assets to back other financial products.
“The nation’s financial services sector has looked forward to the amendment for a long time, expecting the rule changes to strengthen development of the debenture market in Taiwan,” the commission’s Banking Bureau Deputy Director-General Jean Chiu (邱淑貞) told a news conference yesterday.
Once the legislature passes the bill, the government will use net asset value — instead of paid-in capital — as the basis for calculating the maximum amount that banks can use for investment, Chiu said.
Net asset value is a more accurate indicator of a bank’s operation and asset strength, she said.
The commission estimated that the banking sector could see an increase of fresh funds of up to NT$400 billion (US$13.01 billion) after the law is changed.
“This would expand banks’ capability to invest in overseas subsidiaries and expand their business scale,” Chiu said.
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