The intensifying military tensions between the US and Iran are beginning to ripple through Taiwan’s financial sector, with banks, insurers and securities firms holding sizable exposure to the Middle East, the Financial Supervisory Commission (FSC) said.
As of the end of last year, the three major financial segments’ combined exposure reached NT$2.35 trillion (US$74.35 billion), up 3.07 percent from a year earlier, the FSC said yesterday, urging local financial institutions to boost risk controls and monitor potential volatility stemming from the geopolitical situation.
Corporate exposure to the Middle East is concentrated in countries with relatively strong fiscal positions and sovereign credit ratings, including the United Arab Emirates (UAE), Saudi Arabia, Qatar, Kuwait, Israel, Oman and Jordan, the commission said.
Photo: Kelson Wang, Taipei Times
Among financial firms, insurers carry the largest share of risk, as this segment’s exposure reached NT$1.77 trillion at the end of last year, with the majority of positions tied to investments, primarily in sovereign bonds, it said.
Insurers’ top three investment destinations are the UAE at NT$619.3 billion, Saudi Arabia at NT$477 billion and Qatar at NT$394.4 billion, it said.
The UAE has consistently ranked as the 10th-largest overseas market for Taiwan’s financial holding companies. The country has also become a core market for Taiwanese life insurers deploying capital in the Middle East.
Ongoing US-Iran tensions could trigger sharp short-term volatility in sovereign debt valuations, while longer-term risks might include rising energy costs, which could affect life insurers’ ability to manage long-duration bond portfolios, analysts said.
Banks reported NT$599.2 billion in combined exposure to the Middle East, concentrated in the UAE, Saudi Arabia, Qatar, Kuwait, Israel, Jordan and Oman, the commission said.
The segment’s exposure to the Middle East is primarily in the form of loans to regional financial institutions and corporations, with investment positions largely in bonds issued by local financial institutions. No Taiwanese banks have exposure to Iran, the commission said.
Taiwanese mutual funds hold a combined NT$67.8 billion in Middle East-related assets, which the Securities and Futures Bureau described as limited in both value and proportion relative to total fund assets.
Financial firms’ exposure to Israel totaled NT$136.7 billion at the end of last year, down 4 percent from a year earlier, the commission said.
The decline was the largest among the seven Middle Eastern countries, suggesting that firms have begun trimming positions to mitigate geopolitical risks there.
The TAIEX yesterday plunged 771.44 points, or 2.2 percent, to close at the day’s low of 34,323.65 following a sell-off sparked by the ongoing military conflict in the Middle East.
The New Taiwan dollar also fell sharply against the US dollar, losing NT$0.178 to end at NT$31.609 in Taipei trading.
With the geopolitical landscape in flux, financial institutions must maintain proactive risk management and monitor developments closely, particularly those heavily invested in sovereign debt markets vulnerable to sudden shifts in regional stability, the commission said.
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