Fri, Oct 21, 2022 page11

• Financial regulator boosts defenses amid outflows

  GLOBAL EFFECTS: The head of the FSC said that factors affecting foreign investment outflows include US Fed interest rate hikes, and inflation and supply chain issues

  • Bloomberg
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  The Financial Supervisory Commission (FSC) is moving to bolster the market’s defenses in the face of outflows set to reach the highest level in two decades.

  “We are at a period of transition and I believe foreign investors will return to Taiwan’s markets eventually,” Financial Supervisory Commission (FSC) Chairman Thomas Huang (黃天牧) said in an interview on Wednesday.

  At the same time, DBS Group Holdings Ltd is expected to make big investments after completing its deal to buy Citigroup Inc’s consumer banking assets in Taiwan, Huang said.

  

  Financial Supervisory Commission Chairman Thomas Huang speaks at a meeting of the legislature’s Finance Committee in Taipei on Wednesday last week.

  Photo: CNA

  Increased tensions that affect Taiwan, including tighter US control over chip exports to China, have dimmed the nation’s economic outlook.

  The turbulence has led global financial firms to reassess the risks of doing business in the region and global funds to pull money out at the fastest pace in two decades.

  For Huang, factors affecting foreign investment outflows include interest rate hikes by the US Federal Reserve, inflation concerns and supply chain issues.

  “They are all related to changes in the international political and economic situation,” he said.

  More global financial institutions are likely to move to Taiwan after some joined this year, he said, without naming any of the companies that have expressed interest in Taiwan.

  “DBS will become Taiwan’s largest foreign bank in retail banking after completing the deal with Citigroup, and it’s expected to make lots of investments for equipment and talent to retain local customers,” Huang said.

  Even so, the turmoil is affecting decisionmaking at banks.

  UBS Group AG, for example, has asked its Taiwan-based trading desk to assess its contingency planning and see how it can lower exposure to the nation.

  Insurers are also backing away from writing new policies to cover firms investing in Taiwan.

  Banking Bureau Director-General Sherri Chuang (莊琇媛) said that “as far as we know” no foreign banks have plans to leave or downsize locally.

  The TAIEX has fallen about 30 percent from a record high in January, among the world’s worst-performing stock markets this year. Global funds have pulled more than US$46 billion from local equities this year, on track for the biggest annual outflow in more than two decades.

  Last week, the commission beefed up curbs on short-selling to maintain stability in the securities market after initiating a similar measure at the end of last month.

  The commission has prepared further stabilizing measures, but would only implement those at the appropriate time, Huang said.

  The government’s National Stabilization Fund has also supported the market with more than NT$10 billion (US$311.46 million) of securities purchases as of the end of last month.

  “I don’t know when foreign investors will return, but I know the Fed hiked rates to counter inflation and may change monetary policy again once inflation is contained,” Huang said. “What I can do is to increase resilience of Taiwan’s financial system and capital markets.”

  Meanwhile, the local insurance industry has buffered itself against surging COVID-19 claims after raising capital, Huang said.

  The non-life insurance companies have no problems fulfilling their obligations in paying claims so far, he said.

  Life insurers also do not face any operational problems after being allowed to reclassify some assets to cope with further interest rate increases from the Fed, he added.

  Firms such as Fubon Financial Holding Co (富邦金控) and Cathay Financial Holding Co (國泰金控) face steep headwinds amid rising interest rates and falling stock markets at the same time as they are being hit hard by surging claims on COVID-19-related policies.

  Rapid rate increases by the Fed have weighed heavily on the local insurance industry, which has more than 60 percent of its investment portfolio in US bonds, JPMorgan Chase & Co research showed.

  “This is a turbulent situation, and the financial regulator should be cautious and fearful,” Huang said. “We must be very careful in responding to interest rate hikes or different changes in the future.”

  The turmoil this month prompted the commission to allow the firms to reclassify their assets to improve their financial ratios, and the regulator has also asked insurers to set aside special reserves to ensure capital adequacy.

  At present, four life insurance companies are expected to reclassify their assets, Huang said.

  Two are life insurance companies under financial holding firms, one is a pure insurance firm and the other is a British company, he said.

  They account for 47 percent of the industry by total assets, he said.

  Insurers have so far paid out NT$100.7 billion in COVID-19 claims, while only reaping about NT$4.5 billion in revenue on those policies.
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