The nation’s financial services companies last month unexpectedly increased their combined exposure to China last month amid the COVID-19 outbreak, marking the first increase in the past six months, Financial Supervisory Commission’s (FSC) data released yesterday showed.
The combined exposure of the banking, insurance, and securities and futures industries advanced 1.12 percent at the end of last month from a month earlier to NT$1.94 trillion (US$63.96 billion), the commission said.
“It seems that some companies increased their investment in China last month, maybe by buying dips in the Chinese stocks or other Chinese yuan-denominated bonds,” the commission told a news briefing.
Local banks’ exposure to China totaled NT$1.66 trillion as of the end of last month, an increase of NT$16.5 billion from the end of last year, which could be due to a mild increase in their investment, Banking Bureau Chief Secretary Phil Tong (童政彰) said.
Their aggregate lending to China remained flat month-on-month, Tong said.
Although few credit rating agencies have predicted that nonperforming loans in China would surge this year amid the outbreak, the FSC has asked local banks to enhance their monitoring of credit costs and loan quality, Tong said.
The banks are expected to review the financial strength of debtors in different industries and regions, he said.
“However, we do not encourage banks to recover loans without properly evaluating the risks,” he added.
Exposure to China accounted for 46.4 percent of the banking sector’s net worth last month, up from 46 percent at the end of the fourth quarter of last year, but still down from 48.7 percent in the third quarter, the commission’s data showed.
The FSC has asked lenders to set aside more funds to cover potential bad debts, requiring them to prepare an allowance for bad debts equal to at least 1.5 percent of their loans offered in the Chinese market, more than the 1 percent in regular cases, Tong said.
Local securities firms’ exposure in China rose NT$3.3 billion to NT$18.73 billion, as some of them raised their investment in yuan-denominated fixed incomes, the Securities and Futures Bureau said.
Local insurance companies’ exposure totaled NT$266.7 billion as of the end of last month, up NT$1.9 billion from a month earlier as companies took more yuan-denominated deposits, it said.
“So far, it is difficult to forecast whether the companies would cut their exposure this month and how long the spread of the virus would continue to affect their decisions,” Tong said. “We have to continue monitoring.”
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