The Ministry of Finance said yesterday that Taiwanese companies doing business in China may be required to back up loans granted by local banks with collateral located in places other than China.
The so-called "firewall measures" will help local banks to more easily write off bad loans if they are incapable of liquidating non-performing collateral located in China.
"Lenders may ask Taiwanese borrowers investing in China to back their loans with overseas assets," said Chang Ming-daw (
On Aug. 2, the ministry expanded the business scope of offshore banking units (OBUs) by allowing them to grant loans on government-approved China-bound investments, although a limit of 30 percent of the total investment has been set to prevent a major exodus of Taiwanese capital to China.
Now OBUs will be allowed to lend over 30 percent of their net assets, Chang said. The lending maximum for China-bound investments will be around US$10.9 billion, which accounts for about 2.7 percent of Taiwan's bank loans.
The regulation, however, forbids borrowers from using any NT dollar-related assets.
The policy will make the flow of capital across the Strait more transparent while also encouraging direct China-bound investments instead of indirect investments via a third country, Chang said, while also issuing a warning.
"Lenders should take full responsibility for assessing risks while granting loans to China-bound investment by carefully evaluating borrowers' business credit worthiness, financial portfolio and corporate profitability," he said.
Though the policies are well thought out, a senior bank official said that risks remain high for local banks' OBUs that issue loans for investments in China.
"Should loans turn sour, local banks will have difficulties dealing with collateral in China," said Chen Cheng-hsien (
He also doubted the willingness of Taiwanese banks to grant loans backed by collateral in China since they lack capability to appraise value.
In addition, he said that a growing number of commercial banks in China, such as the Bank of Communication (交通銀行) and Shanghai Pudong Development Bank Co (上海浦發銀行), are providing low-interest loans to Taiwanese investors.
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