RLPC-Taiwan’s FSC examines Taiwanese banks’ China exposure

Oct 24 (Reuters) – Taiwan’s Financial Supervisory Commission (FSC) has launched an enquiry into 10 Taiwanese banks with the largest exposure to Chinese companies, following a similar investigation by the country’s Ministry of Finance (MoF), bankers said on Wednesday.

As a major shareholder, Taiwan’s MoF asked eight Taiwanese state-owned banks to provide details of outstanding loans to Chinese companies in early October as fears of defaults by privately-owned Chinese companies rose.

The FSC’s probe has broadened the investigation to Taiwan’s commercial banks, including CTBC Bank and Cathay United Bank, the bankers said.

There is some crossover with the MoF’s review as some of the 10 banks that the FSC is reviewing are state-owned, including Chang Hwa Commercial Bank, First Commercial Bank and Taiwan Cooperative Bank, they added.

The FSC’s review is an external investigation, unlike the MoF investigation, which is internal due to its shareholding.

The 10 banks have been asked to submit detailed information on their loan exposure 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, security and guarantor,” a senior loan banker at a state-owned bank said.

The investigation is expected to continue 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, they have the highest exposure to Chinese companies,” she said.

Outstanding loans to Chinese companies and individuals amounted to $27.909 billion in Taiwanese banks’ offshore banking units and overseas branches at the end of August 2014, according to a FSC press release.

Overdue loans totalled $40 million and the overdue loan ratio stood at 0.14 percent, the release said.

“We would like to know whether the banks have been diligent enough when they lend to Chinese companies and have 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 times. The FSC is not planning to lower this ratio in the near future, Wang said.

The FSC published a list of 39 banks’ exposure to China at the end of the third quarter of 2014 on October 23. Bank SinoPac topped the list with a ratio of 0.92 times.

Taipei Fubon Commercial Bank (0.90 times), Mega International Commercial Bank (0.87 times), Jih Sun International Bank (0.86 times) and Chang Hwa Commercial Bank (0.84 times) 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 Commercial Bank, Taipei Fubon Commercial Bank and Jih Sun International Bank saw the biggest increases in their ratios in that time.

Ta Chong Bank and Bank of Kaohsiung’s ratios fell the most in the comparison period.

POOR GOVERNANCE

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 AG. Two executives disappeared in September with the proceeds of a $60 million, three-year loan which was signed in August. Lenders have accelerated the facility and are asking for repayment.

Last week real estate developer Agile Property Holdings Ltd started talks with banks to extend a bridge loan that was due to mature in December and amend a syndicated loan that was signed in June after its billionaire founder and chairman Chen Zhou Lin was detained.

Agile is raising HK$1.65 billion ($213 million) via a rights issue to repay some of the $475 million eight-month loan. The real estate developer is also trying to amend a clause on a separate HK$5.665bn three-year loan that was 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 asking for higher interest margins on the loans.

“We could commit up to $50 million on a single Chinese deal before, but now we may take $10-20 million instead. We need 35bp to 50bp more on the spread,” a loan banker at a Taiwanese commercial bank said. (Editing by TESSA WALSH and Prakash Chakravarti)