New yuan rule to boost local banks, expert says

REGULATIONS RELAXED::Taiwanese banks operating in China, such as Cathay United, stand to gain from the move to allow OBUs to conduct yuan transactions

Staff Writer, with CNA

Sat, May 28, 2011 - Page 11

Taiwan’s move to allow offshore banking units (OBU) of local banks to handle yuan-denominated operations was praised yesterday by an analyst who expects the new facility’s growth potential will boost bottom lines in the sector.

“The opening will allow local banks to extend yuan loans to Taiwanese investors operating in China without the need to set up a branch on the mainland first,” Grand Cathay Securities (大華證券) analyst Mars Hsu (徐振家) said.

The Financial Supervisory Commission announced on Thursday that it had agreed to a proposal to allow local banks’ OBUs to handle yuan transactions, with the measure to take effect pending approval from the Executive Yuan.

Taiwanese banks have long urged the government to relax restrictions to allow their offshore arms to conduct yuan transactions.

Currently, only six local banks operate branches in major Chinese cities, such as Shanghai and Shenzhen, where Taiwanese investors are clustered.

The six, which opened branches in China late last year or early this year, are First Commercial Bank (第一銀行), Cathay United Bank (國泰世華銀行), Chang Hwa Commercial Bank (彰化銀行), Land Bank of Taiwan (土地銀行), Taiwan Cooperative Bank (合作金庫銀行) and Hua Nan Commercial Bank (華南銀行).

POSITIVE

None of these six banks, however, are allowed by Chinese authorities to extend loans to their Taiwanese clients until their branches in China can show a profit over a full year of operations.

“The new rule opens a gate for local banks and saves them plenty of time as they gear up to generate profits by targeting Taiwanese firms there,” Hsu said. “That is no doubt positive.”

Hsu said large banks with strong corporate banking operations are expected to be the largest beneficiaries of the new business.

“The market has high hopes that the new rule will lift Chinatrust Commercial Bank’s (中國信託商銀)and Mega International Commercial Bank’s (兆豐國際商銀) profitability,” Hsu said.

According to Hsu, corporate lending accounts for about 40 percent of Chinatrust’s total lending balance and more than 50 percent of Mega Bank’s lending balance.