State-run Hua Nan Financial Holding Co (華南金控) expects profit to stall for the rest of the year, after a 20 percent increase in the first half, due to a deteriorating operating environment caused by global monetary easing and increasing risks, senior executives said yesterday.
Its main subsidiary, Hua Nan Commercial Bank (華南銀行), has exposure to US$600 million in yuan-linked target redemption forwards (TRF), a high-risk financial derivative, with unrealized losses on the part of clients standing at US$50 million as of Monday, officials said.
The bank-focused conglomerate reported NT$7.59 billion (US$232 million) in net profit for the first six months of the year, or earnings per share of NT$0.81, thanks to fee income improvement, company data showed.
However, net interest margin, a critical profitability gauge for financial institutions, stood at 1.09 percent in late June, down 2 basis points from three months earlier and flat from a year ago. It also lagged behind its guidance of an increase of 5 basis points for this year.
“It is difficult to raise interest spreads or margins, as global central banks have adopted monetary easing to support economic growth,” Hua Nan Financial president Derek Chang (張雲鵬) told an investors’ conference in Taipei.
The financial conglomerate issued the guidance on the assumption that the nation’s central bank would hike interest rates later this year, but that forecast appears unlikely to be realized with the nation’s GDP growth faring much weaker than expected.
Hua Nan Bank increased its loan book by 4 percent in the first half and aims to keep it steady in the second half, despite a dimmer outlook after the government cut its economic growth forecast for this year by more than half to 1.56 percent.
The bank would be more cautious in conducting business in light of growing risks, vice president Shih Chih-ho (石志和) said.
The bank’s net interest margin could drop further if the central bank cuts interest rates next month to stimulate business activity, Shih said.
Hua Nan Bank is also conservative in selling financial derivatives such as TRFs and could withstand drastic volatility caused by yuan depreciation.
As of Monday, the yuan’s depreciation reduced the TRF position of about a dozen clients by US$500,000, the bank said.
The exposure is limited, compared with its private-run peers, which reportedly could suffer up to US$6 billion in losses from their yuan TRF holdings, Hua Nan Bank said.
Most TRF clients bet that the Chinese currency would trade at 6.2 to 6.7 against the greenback and have either to keep up deposits to meet margin requirements or face forced liquidation, local media reports said.
Reported TRF losses dragged down financial shares by 2.28 percent yesterday, deeper than the TAIEX’s 0.44 percent decline, Taiwan Stock Exchange data showed.
Hua Nan Financial shares slid 1.58 percent to NT$15.60 yesterday, adding to a slump of 10.7 percent this year.
RESTRUCTURING: Taichung and Taoyuan profited most from local firms moving back high-end manufacturing amid the US-China decoupling of trade ties, the ministry said The government’s “Invest in Taiwan” initiative might this year see NT$627.1 billion (US$21.7 billion) of investment pledges realized, with several firms raising stakes and two dropouts due to customer losses, Minister of Economic Affairs (MOEA) Wang Mei-hua (王美花) said yesterday. Wang made the statement at the monthly meeting of the Third Wednesday Club, a local trade group featuring the top 100 firms of each business sector. Since early last year, the government has launched three programs intended to help local companies grapple with US-China trade rows and the COVID-19 pandemic, mainly through moving production lines back to Taiwan. Thus far, the ministry
JOBS AT RISK? Most Cathay Dragon routes are to be operated by Cathay Pacific or a subsidiary, but it was unclear how Taiwanese workers would be affected Cathay Pacific Airways Ltd (國泰航空) yesterday said it is planning new flight services for Taiwan as it announced a corporate restructuring that included the shutdown of its regional subsidiary, Cathay Dragon (國泰港龍), and could lead to job cuts in Taiwan. Cathay Pacific said the shutdown means that the one round-trip service between Taichung and Hong Kong per day and seven round-trip services between Kaohsiung and Hong Kong operated by Cathay Dragon prior to the COVID-19 pandemic would be terminated. “The parent company is planning a new schedule between Taiwan and Hong Kong,” Cathay Pacific assistant manager for corporate communications Moses Hou (侯恩錫)
OVERHEATED MARKET?: The gauge would be designed to provide more reliable information than private-sector data, and help improve policymaking, the council said The National Development Council (NDC) is considering creating a business climate index on Taiwan’s property market, allowing policymakers to better monitor market movements and intervene if necessary, NDC Minister Kung Ming-hsin (龔明鑫) said yesterday. Kung made the remarks at a meeting of the legislature’s Economic Committee where lawmakers from across party lines voiced concerns about housing price hikes driven by capital repatriation. Kung said that the council is assessing the possibility of creating an index designed to provide more accountable and transparent information than data provided by private-sector market analysts, and could help improve policymaking. The council would compile a report on
STOCK MARKETS TAIEX closes slightly higher The TAIEX closed slightly higher yesterday as market sentiment remained cautious over the Nov. 3 US presidential election. Contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) was again the anchor stabilizing the broader market, preventing the main board from falling into negative territory at the end of the session, dealers said. The TAIEX closed up 14.88 points, or 0.12 percent, at 12,877.25, on turnover of NT$167.982 billion (US$5.81 billion). TSMC, the most heavily weighted stock on the local market, rose 0.44 percent after fluctuating between NT$451 and NT$456. The semiconductor subindex and the bellwether electronics sector