Taiwan to Let Mainland Lenders Own Bigger Stakes of Banks

Taiwan will let Chinese banks own as much as 20 percent of some financial institutions, raising a limit on mainland ownership from 5 percent as cross-strait economic integration deepens.

Taiwan’s Financial Supervisory Commission announced the move yesterday after its Chairman Chen Yuh-chang met his counterpart from the China Banking Regulatory Commission, Shang Fulin, in Taipei in the third gathering of its kind since 2011.

Larger potential investments may turn into partnership opportunities for Taiwanese banks such as Fubon Financial Holding Co. and Cathay Financial Holding Co., which are seeking greater profits outside of a saturated home market. Chinese President Xi Jinping has pledged to promote cross-strait ties, continuing efforts of the previous administration.

“Taiwan lenders anticipate attracting Chinese investment and are eyeing future expansion opportunities in China,” Chuang Piyen, a Taipei-based banking analyst at Mega Securities, said before the announcement.

Mainland China banks will be allowed to take a 10 percent stake in listed financial institutions, 15 percent in unlisted firms, and as much as 20 percent of banking units of financial holding companies, the Taiwan regulator said in a statement.

The higher cap will take effect as soon as possible, Kuei Hsien-Nung, director general of the FSC’s banking bureau, said yesterday, and will be completed under the services and trade pact of the Economic Cooperation Framework Agreement signed between the two governments in 2010.

Commercial Banks

China will also let its commercial banks invest in Taiwan stocks under the qualified domestic institutional investor, or QDII, program. An agreement between the regulators signed yesterday will take effect within 60 days, the FSC said.

Taiwan’s financial regulator in 2011 urged lenders to expand faster on the mainland as competition erodes returns at home. The banks have the second-narrowest net interest margin in the Asia-Pacific region, after Japan, data compiled by Bloomberg show. Standard & Poor’s said in a March report that Taiwan’s banking sector profitability is “mediocre” compared with its peers in Asia.

“The development of Taiwan banks has reached a bottleneck in the saturated domestic market as overbanking is a big problem,” said Mega’s Chuang. “The opportunities to expand business in China will be a driver for its earnings growth.”

Eleven Branches

The MSCI Taiwan Financials Index rose 0.1 percent as of 9:52 a.m. local time. It has gained 11 percent this year, outpacing a 2.7 percent increase in the island’s benchmark Taiex index.

Taiwan Business Bank was approved by the CBRC to set up its first China branch in Shanghai, according to a March 26 filing with the Taiwan stock exchange, bringing the number of Taiwan bank branches in China to 11, according to the FSC.

China Construction Bank Corp. joined Bank of China Ltd. and Bank of Communications Co. in setting up a branch in Taiwan, the FSC said in a statement on March 26.

Xi said in February that Communist Party leaders have a duty to seek peaceful reunification with Taiwan and pledged to uphold the one-China principle, the official Xinhua News Agency reported after a meeting between Xi and Kuomintang Honorary Chairman Lien Chan. On March 17, at the closing of this year’s National People’s Congress, Xi pledged to improve relations across the Taiwan Strait.

Taiwan banks began taking yuan deposits on the island in February, as well as underwriting debt in the mainland’s currency, after an agreement was signed last year allowing for yuan clearing in Taiwan. China, with a population more than 50 times bigger than Taiwan’s, is the island’s largest trading partner.

Separate Governments

China and Taiwan have been ruled separately since 1949, when the Kuomintang government fled to the island during a civil war against Communist forces. Tensions eased after Taiwan President Ma Ying-jeou took office in 2008 and dropped his predecessor’s pro-independence stance, focusing instead on strengthening economic ties with the mainland. Yesterday’s cross-strait banking regulatory meeting is the third since the practice started in 2011.

The CBRC may allow the island’s lenders to establish sub-branches in different cities under more favorable rules than other foreign banks, Fan Wenzhong, director general of the international department at the CBRC, said in Taipei.

“Market-access rules for Taiwan banks are more relaxed compared with those for foreign banks,” Fan said at the press conference in Taipei yesterday. “China hopes Taiwan will offer better treatment for Chinese banks in return.”

The FSC said it plans to remove a requirement that cross-strait lenders operate in Organization for Economic Cooperation and Development member economies for five years before setting up a branch in either market. The change will benefit small to midsized banks that lack the international experience, according to Chuang.