Financial stocks rose 2.51 percent yesterday, outperforming the benchmark TAIEX’s 1.98 percent increase, after the Financial Supervisory Commission on Tuesday released initial guidelines on cross-strait investment by financial institutions on Tuesday.
Cathay Financial Holding Co (國泰金控), the nation’s largest financial services provider, saw its shares rise 3.63 percent to NT$54.20, while Chinatrust Financial Holding Co (中信金控), which owns the nation’s largest credit-card issuer, advanced 2.51 percent to NT$18.35.
“Although the impact is likely to be limited in the short term, taking into account the scope of [market] access allowed, we believe these guidelines represent a first of many steps towards better access for Taiwanese financial institutions in China and vice versa,” Bradford Ti (鄭溫煌), an analyst who tracks the nation’s financial sector at Citigroup Global Markets, said in a client note yesterday.
Two months after the cross-strait memorandum of understanding (MOU) on financial supervision took effect on Jan. 16, the commission on Tuesday released the guidelines on market access for financial institutions on both sides — subject to certain requirements on asset quality, capital and net worth.
The commission said local banks, insurers and securities brokerages could apply to own a stake in a single Chinese peer after the legislature approves the guidelines.
“Although we had been more cautious on cross-stakeholdings, taking into account the social and political sensitivities involved, we are pleasantly surprised to see this may also be allowed, albeit on a very limited scale,” Ti said of the commission limiting Chinese banks’ acquisition of a Taiwanese peer to a maximum shareholding of 5 percent, or 10 percent as a group.
He said, however, that the opening might not be attractive enough for larger Chinese banks and insurers.
The guidelines may take effect once the two sides sign a proposed economic cooperation framework agreement (ECFA) by June, but Ti said the initial opening was unlikely to generate “a meaningful impact on returns in the short term.”
Still, this move represents a positive development for local financial institutions in the long term, in terms of a larger market in China and a potential niche market for China-based Taiwanese businesses and individuals, he said.
Cathay Financial president Chen Tsu-pei (陳祖培) said yesterday the company would apply to upgrade its banking unit’s representative office in Shanghai to a branch.
“We aim to boost our banking presence in the mainland, which is our weakest link, as we already have life and property insurance ventures in China,” Chen said.
The company formed a life insurance venture with Shanghai-based China Eastern Air Holding Co (中國東方航空集團) in 2005 and established a property and casualty insurance venture in China in 2007.
ADDITIONAL REPORTING BY BLOOMBERG
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