Taiwanese companies have NT$150 billion (US$4.97 billion) in exposure to yuan-linked target redemption forward (TRF) financial derivative products with unrealized losses valued at NT$6 billion, Financial Supervisory Commission Chairman William Tseng (曾銘宗) said yesterday.
The commission has no plan to bar sales of TRFs or other financial derivatives, but will ask banks to exercise more caution and screen customers when they pitch risky investment products, Tseng said.
Tseng’s statements came after local manufacturers, including Asustek Computer Inc (華碩電腦), posted soft first-quarter earnings due partly to yuan depreciation this year.
The nation’s companies, listed and unlisted, have exposure of more than NT$150 billion to TRFs — specifically a yuan-linked investment tool — with potential losses standing at NT$6 billion, a bearable sum, Tseng said.
Most TRF buyers are exporters that are paid in yuan for their products and services across the Taiwan Strait, but some are after arbitrage profit opportunity — the practice of taking advantage of price differences between markets.
The prevalent forecast of yuan appreciation by institutions at home and abroad lent support to TRF investment, which incurred significant losses as the currency has weakened 2.8 percent over the past four months.
Among listed firms, TRF exposures approximate NT$58.3 billion and mark-to-market losses hover about NT$1.9 billion, Tseng said.
The figures would rise to NT$3 billion if yuan-linked futures and options were included, as well as realized losses, he said.
The breakdown suggests that unlisted firms with generally smaller capitalization bear heavier TRF exposures totaling about NT$100 billion and potential losses of NT$4 billion.
The commission plans to unveil a supervisory mechanism by the end of this month that will restrict TRF sales volume, contract terms and purchasers, Tseng said, adding that bank boards should be briefed of related risks.
The probe into unfair TRF operations remains under way and more banks may be punished as well as Bank SinoPac (永豐銀行), the flagship unit of SinoPac Financial Holdings Co (永豐金控), Tseng said.
Tseng frowned on SinoPac’s promotion of an employee formerly responsible for TRF business, saying the person involved should receive a demotion instead.
“Banks should sell TRFs to the right clients — that should not include retail customers,” Tseng said.
Meanwhile, Tseng said the bourse plans to launch a pay raise index in August, encouraging investment in firms that share corporate profits with their employees, he said.
The commission would not rule out naming uncooperative companies, he added.
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