The Financial Supervisory Commission (FSC) yesterday said that it is drafting a comprehensive stress test to gauge domestic banks’ ability to withstand wide swings in variables affecting risk exposure.
Unlike previous tests evaluating banks’ resilience against specific risk exposures, the latest test is to encompass macroeconomic factors such as the nation’s economic growth rate, jobless rate, the value of the New Taiwan dollar and interest rates.
Domestic banks have passed a number of stress tests simulating inclement conditions in specific segments, and have met the commission’s requirements for financial ratios.
In 2010, banks demonstrated that they were able to weather slowing GDP growth, rising unemployment and a cooling housing market and had managed to contain impacts to their financial conditions at the range required by the commission.
Stress tests on banks’ exposure to domestic home loans and loans by their China-based lending operations were carried out in 2014 and last year respectively.
The nation’s banks passed both tests, showing that they were able to contain impacts to their capital adequacy and tier 1 ratios at a level deemed manageable by the commission.
A Tier 1 capital ratio measures a bank’s financial strength based on the sum of its core equity capital and total risk-weighted assets, while capital adequacy determines the financial strength of a company.
The commission is reviewing the outcome of a stress test on banks’ exposure to yuan-linked target redemption forward (TRF) contracts that was conducted last month.
While analysts are in agreement that the worst of the concerns about TRF contracts have passed, as a majority of the contracts expired as of the end of last month, they said unexpected swings in the yuan’s strength could still cause significant losses for banks.
The FSC’s TRF stress test simulating a weakened yuan of 6.8 per US dollar was deemed inadequate, as the yuan is expected to fall to 7.5 against the greenback by the end of this year, Daiwa Capital Markets analyst Christie Chien (簡民惠) said in a client note last week.
Since the Chinese central bank devalued the yuan in August last year, TRFs have caused widespread losses for investors, while banks are facing rising exposure to the instrument’s refundable deposit against potential defaults by their clients.
Banks have also lost highly profitable items in their product mix as sentiments toward the troubled derivative soured.
PROBE
In related news, the commission said that it has asked its Financial Examination Bureau to probe allegations by New Power Party Legislator Huang Kuo-chang (黃國昌) that a number of banks assisted their clients to produce false financial statements and set up offshore accounts in a bid to promote TRF sales.
The domestic unit of the Chinese-owned, Dutch-headquartered chipmaker Nexperia BV will soon be able to produce semiconductors locally within China, according to two company sources. Nexperia is at the center of a global tug-of-war over critical semiconductor technology, with a Dutch court in February ordering a probe into alleged mismanagement at the company. The geopolitical tussle has disrupted supply chains, with some carmakers reportedly forced to cut production due to chip shortages. Local production would allow Nexperia’s domestic arm, Nexperia Semiconductors (China) Ltd (安世半導體中國), to bypass restrictions in place since October on the supply of silicon wafers — etched with tiny components to
Singapore-based ride-hailing and delivery giant Grab Holdings Ltd has applied for regulatory approval to acquire the Taiwan operations of Germany-based Delivery Hero SE's Foodpanda in a deal valued at about US$600 million. Grab submitted the filing to the Fair Trade Commission on Friday last week, with the transaction subject to regulatory review and approval, the company said in a statement yesterday. Its independent governance structure would help foster a healthy and competitive market in Taiwan if the deal is approved, Grab said. Grab, which is listed on the NASDAQ, said in the filing that US-based Uber Technologies Inc holds about 13 percent of
Taiwan is open to joining a global liquefied natural gas (LNG) program if one is created, but on the condition that countries provide delivery even in a scenario where there is a conflict with China, an energy department official said yesterday. While Taiwan’s priority is to have enough LNG at home, the nation is open to exploring potential strategic reserves in other countries such as Japan or South Korea, Energy Administration Deputy Director-General Chen Chung-hsien (陳崇憲) said. While the LNG market does not have a global reserve for emergencies like that of oil, the concept has been raised a few times —
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday received government approval to deploy its advanced 3-nanometer (3nm) process at its second fab currently under construction in Japan, the Ministry of Economic Affairs said in a news release. The ministry green-lit the plan for the facility in Kumamoto, which is scheduled to start installing equipment and come online in 2028 with a monthly production capacity of 15,000 12-inch wafers, the ministry said. The Department of Investment Review in June 2024 authorized a US$5.26 billion investment for the facility, slated to manufacture 6- to 12nm chips, significantly less advanced than 3nm process. At a meeting with
RSS