FSC to restrict credit-extension ceiling by foreign bank branches.

Taipei, Nov. 11, 2009 (CENS)--To ward off possible side effect from the opening up of cross-Taiwan Strait financial markets, the Financial Supervisory Commission (FSC) will change the calculation base for the ceiling of credit extension by foreign bank branches in Taiwan to the book value of the branches, from that of the parent banks originally, which will greatly restrict foreign bank branches credit-extension volume on the island.

The revision is made according to the instruction of the Executive Yuan (the Cabinet), before it signals a green light for the signing of the memorandum of understanding (MOU) for cross-Strait cooperation in financial supervision, a prelude to the mutual opening of financial markets by both sides. It is designed to mitigate the impact of competition from Chinese banks, whose business scales are much larger than domestic banks on the island.

Sean Chen, FSC chairman, noted that the revision will be applicable to all foreign bank branches in Taiwan, rather than just Chinese banks, adding that the FSC has autonomous right to impose the restriction on foreign banks under the cautious supervision principle of the World Trade Organization (WTO).

As of the end of August, total book values of foreign bank branches in Taiwan reached only NT$64.9 million, a far cry from the scale of their parent banks whose book value could reach several billions or even tens of billions of US dollar each. Outstanding loans by foreign bank branches topped NT$521.3 billion, with market share of 2.86%, at the end of August, much lower than US$760.8 billion, or 4.14% share, a year earlier.

To meet the urgent need of MOU, the FSC will complete the revision in the shortest time possible. Currently, foreign bank branches are subject to a ceiling, based on their parent banks book values, in extending loans to the same individual, related party, or the same affiliate. The ceiling will be greatly reduced, once the basis is changed to the book value of the branches. The revision will also require foreign bank branches to raise their working capital and their parent banks to pledge providing sufficient liquidity to branches when necessary, in order to enhance their risk enduring capability, in the wake of the outbreak of global financial tsunami.