Fitch Ratings said yesterday that Taiwanese banks would see limited economic benefits from the market opening in China, even though a cross-strait memorandum of understanding on financial supervision and market access took effect in January.
That was because Taiwanese banks would still face “very limited access” to China’s banking market given the current regulations, as well as other potential operational and credit risks, said Jonathan Lee (李信佳), Fitch Ratings senior director of financial institutions.
Under the current banking regulations in China, for instance, foreign lenders are required to wait for five years before they can process yuan transactions — waiting two years to set up representative offices and another three years to upgrade those offices into branches.
Hong Kong banks, under its Closer Economic Partnership Arrangement (CEPA) with China, need to wait only two years for the access to yuan business.
As for Taiwan’s regulatory constraints, local lenders were told last month by the Financial Supervisory Commission that each bank could own a stake in a single Chinese peer, when the commission released its guidelines on market access to China for financial institutions.
The guidelines will only take effect once the two sides sign a proposed economic cooperation framework agreement (ECFA) — probably next month or in June — and they depend on the conditions that are set out in the ECFA’s early harvest list for financial services.
Lee said another risk for Taiwanese banks who plan to own a stake in a Chinese counterpart in the near term would come from the Chinese regulator’s demand that its banks reassess their loan risk and raise funds to improve their financial strength.
Even so, Fitch Ratings said it held a positive earnings outlook on Taiwanese banks this year, citing the modest global economic recovery.
The ratings agency now predicts Taiwan’s GDP growth will bounce back to 4.7 percent this year from a 1.87 percent contraction last year, which is the largest contraction on record based on the government’s data.
On Tuesday, the Asian Development Bank forecast that Taiwan’s economic growth would be 4.9 percent this year.
“Nonetheless, the process of household deleveraging in the major economies will weigh somewhat on the growth momentum,” Fitch said in a statement. “Moreover, Taiwan’s banks may see their earnings limited by structural competition and additional loan loss provisioning as regulators impose more stringent provisioning rules.”
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