The Financial Supervisory Commission (FSC) yesterday said it was considering relaxing the rules governing local banks’ loan and investment exposure to China to facilitate the growing economic and financial exchanges across the Taiwan Strait.
The law that governs Taiwanese lenders’ business activities in China now stipulates that a bank’s aggregate amount of credit, investment, interbank loans and deposits shall not exceed 100 percent of its net worth as of the end of the preceding fiscal year.
While the law is designed to require Taiwanese banks to fully evaluate the risk of doing business in China and thus ensure the safety of their assets, since Taiwan and China signed a memorandum of understanding on a currency clearing agreement on Aug. 31 last year, the commission said the time was ripe for authorities to review the rules as domestic banks gear up to expand their business in China.
After consultation with the central bank and local banks, the commission said it was considering allowing a bank to exclude the part of loans it has yet disbursed from the calculation of its total amount of credit in China, the commission said in a statement posted on its Web site.
In addition, 80 percent of a bank’s interbank loans with investment-grade peers, which have maturities of less than three months, could be excluded in the calculation of the bank’s total interbank loans, the commission said.
When calculating a bank's investment exposure in China, the commission said the bank may also count only the parent company's exposure and remove that of its subsidiaries from the total exposure.
Under the new calculation methods, the commission said the banking industry would have an additional NT$320 billion for investing and credit facilities in China.
The total net worth of Taiwanese banks stood at NT$2 trillion, while their total loan and investment exposure to China was NT$930 billion as of the end of November last year, according to the commission's latest statistics.