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Banks request more financial leeway for mainland Chinese operations.

Taipei, July 14, 2011 (CENS) -- To facilitate the future expansion by domestic banks of their mainland Chinese operations, the Bankers Association ROC has requested the Financial Supervisory Commission (FSC) to raise the ceiling of the total risk exposure incurred by the mainland Chinese operations to 30% of domestic banks' total assets, rather than 50% of their book values, as proposed by the FSC.

The request of the association will boost the risk-exposure ceiling, including investments and credit extension, to NT$10,023.5 billion, NT$9 trillion more than the ceiling tallied according to FSC's proposal, which reached only NT$1,057.7 billion, based on the total book value of domestic banks reaching NT$2.1 trillion as of the end of April.

Domestic banks noted that the use of book value as the basis in the tally of risk-exposure ceiling will greatly constrain the development of domestic banks in the Chinese market, due to the smaller amount of their book values. Such constraint will hamper effort of the mainland Chinese operations in gaining sufficient financial support from their parent firms for their expansion.

They pointed out that the Chinese operations of domestic banks are already subject to various restrictions on their investments and credit extension. For instance, outstanding loans extended by Chinese branches of domestic banks cannot exceed two times the amount of their deposits from local people and call loans; investments by domestic banks in buying into Chinese banks or investments in the setup of Chinese branches and subsidiaries cannot exceed 15% of their book value. In addition, the ceiling of loans extended by offshore banking units and overseas branches to Taiwanese-invested firms in China is tallied on the basis of assets, rather than book value.

An FSC official noted that it is proper to tally total risk-exposure ceiling on the basis of book value, since it concerns the risk management of an entire bank, unlike OBU or overseas branches whose risk-exposure level has limited effect. However, the FSC will take the bankers association's proposal into consideration in formulating the related measures, according to the official.
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Author:Liu, Philip
Publication:The Taiwan Economic News
Geographic Code:9TAIW
Date:Jul 14, 2011
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