E.Sun Financial Holding Co (玉山金控) yesterday said that exposure to complex yuan-linked derivatives has been diminishing since the currency’s sharp tumble rocked investors and the local banking sector in August last year.
The number of clients holding yuan-linked target redemption forward (TRF) contracts at its main unit, E.Sun Commercial Bank (玉山銀行), has fallen by half since the height of the crisis, E.Sun Financial chief financial officer Magi Chen (陳美滿) told a news conference.
“We estimate our maximum potential exposure at a relatively manageable US$7 million under a worst case scenario where the yuan weakens to 6.8 against the US dollar, assuming that all of our clients default,” Chen said, citing the company’s findings from a stress test mandated by the Financial Supervisory Commission earlier this month.
“Even if the yuan falls to 6.5 against the greenback, more than 80 percent of our clients holding the instruments would not be threatened by default,” she said, adding that only one of the company’s clients has defaulted and that the case is undergoing settlement.
As of January, outstanding notional amount of TRFs was NT$53 billion (US$1.63 billion), down from NT$97 billion in May 2014, while banks’ refundable deposit exposure against client defaults fell to NT$74 billion from NT$210 billion in September last year, company data showed.
E.Sun bank clients hold a 4 percent share of the total TRF notional amount, Chen said.
Meanwhile, the bank-focused group does not have plans of expanding into the insurance market through acquisitions, E.Sun president Joseph Huang (黃男州) said.
“In light of Taiwan’s slowing economic growth, low inflation and continuing interest rate cuts, the company prefers to boost its digital financial services and overseas expansions,” Huang said.
He said that each rate cut of 12.5 basis points by the central bank would affect the company’s interest spread by 2 basis points.
Huang said that the company has 21 offshore banking service locations in six Asian nations and that this month it became the first Taiwanese bank to receive a license to operate a branch from regulators in Myanmar.
Australian regulators are also expected to approve its Sydney branch in the second half of this year, he said.
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