Bank probe for China lending
Taiwan’s Financial Supervisory Commission is holding an enquiry into 10 Taiwanese banks with the largest exposure to PRC companies, following a similar Ministry of Finance investigation, according to bankers.
As a major shareholder, Taiwan’s MoF asked in early October eight Taiwanese state-owned banks to provide details of outstanding loans to such companies as fears of defaults related to privately owned PRC firms rose.
The FSC probe had broadened the investigation to Taiwan’s commercial banks, including CTBC Bank and Cathay United Bank, the bankers said.
There was some crossover with the MoF’s review as some of the 10 banks that the FSC was reviewing are state owned, including Chang Hwa Commercial Bank, First Commercial Bank and Taiwan Cooperative Bank, they added.
The FSC review is an external investigation, unlike the MoF investigation, which is internal due to its shareholding.
The 10 banks had been asked to submit detailed information on their loan exposures to the FSC, along with information on investments, interbank savings and other lending to China, bankers said.
“The FSC officers have stayed in our office for about a month, asking for the breakdown of China exposure, such as outstanding loans, repayment schedules, securities and guarantors,” said a senior loan banker at a state-owned bank.
The investigation is expected to last for up to two months and is not targeted directly at offshore banking units and overseas branches, according to Li-Chuan Wang, director general of FSC’s Financial Examination Bureau.
“The (FSC) enquiry is not specifically aimed at the offshore banking units and overseas branches of Taiwanese banks, however, as they have the highest exposures to Chinese companies,” she said.
Outstanding loans of Taiwanese banks’ offshore banking units and overseas branches to Chinese companies and individuals amounted to US$27.909bn at the end of August 2014, according to a FSC press release.
Overdue loans totalled US$40m and the overdue loan ratio stood at 0.14%, the release said.
“We would like to know if the banks had been diligent enough when they lent to Chinese companies and had taken all steps to control risks during the lending process,” Wang said.
Taiwanese banks have come close to breaching a regulatory rule that stipulates that the ratio of Chinese exposure to net assets cannot be more than one. The FSC was not planning to lower this ratio in the near future, Wang said.
On October 23, the FSC published the exposures of a list of 39 banks to China for the third quarter of 2014. Bank SinoPac tops the list with a ratio of 0.92x.
Taipei Fubon Commercial Bank (0.90x), Mega International Commercial Bank (0.87x), Jih Sun International Bank (0.86x) and Chang Hwa Commercial (0.84x) also had high exposure to China at the end of the third quarter.
Comparing the FSC data from the end of the second and third quarters showed that Chang Hwa, Taipei Fubon and Jih Sun had the biggest increases in their ratios. Ta Chong Bank (0.83x vs 0.77x) and Bank of Kaohsiung (0.81x vs 0.73x) have seen their ratios drop the most in the comparison period.
Taiwanese banks have been increasingly wary of lending to privately owned Chinese companies after several recent cases of poor corporate governance.
The most high-profile example was Frankfurt-listed shoemaker Ultrasonic. Two executives disappeared in September with the proceeds of a US$60m three-year loan signed in August. Lenders have accelerated the facility and are asking for repayment.
On Sunday, real-estate developer Agile Property Holdings extended for one year a bridge loan due to mature in December and amended a syndicated loan signed in June after its billionaire founder and chairman, Chen Zhou Lin, was allegedly detained.
Agile is raising HK$1.65bn (US$213m) via a rights issue to repay some of the US$475m eight-month loan. The developer is also trying to amend a clause on a separate HK$5.665bn three-year loan signed in June 25, which states that Chen has to be the chairman of the company at all times during the life of the loan.
Despite these developments, Taiwanese banks still have appetite to lend to some Chinese companies, but are making smaller commitments and seeking higher interest margins on the loans.
“We could commit up to US$50m on a single Chinese deal before, but, now, we may take US$10m–$20m instead. We need 35bp to 50bp more on the spread,” said a loan banker at a Taiwanese commercial bank.
