Taiwan Banks Flee Worst Margins to Capture Higher Asia Share

Taiwanese lenders led by Bank of Taiwan are taking their highest share of syndicated loans in Asia since 2010 as they expand outside the island’s saturated market to escape the worst margins in Asia-Pacific.

Lenders in the region’s seventh-biggest economy helped arrange 10.1 percent of syndicated deals in Asia excluding Japan since Dec. 31, compared with 8.1 percent in all of 2012 and 8.5 percent in 2011, according to data compiled by Bloomberg. Almost half of the lenders that participated in Qantas Airways Ltd.’s A$780 million ($762 million) refinancing and CT Corp.’s $750 million loan to buy Carrefour SA were from Taiwan, the data show.

Interest margins more than 90 basis points below the Asia-Pacific average are prompting Taiwan’s lenders to seek profits abroad. The island’s banks are getting margins of 156 basis points over the London interbank offered rate on credit facilities signed this year, versus 248 for lenders elsewhere, Bloomberg data show. Taiwan had 38 domestic banks as of Mar. 31, compared with Hong Kong’s 21 lenders, according to data from Taiwan’s regulator, the Financial Supervisory Commission, and the Hong Kong Monetary Authority.

“Taiwanese banks are flush with liquidity,” said Alan Lee, CEO of corporate banking at Taipei-based Cathay United Bank Co. “They’re looking for new business opportunities in other markets when high-grade borrowers at home are still paying low pricing due to their strong bargaining power.”

Chip Packaging

Taiwan’s Advanced Semiconductor Engineering Inc., the world’s largest chip packaging and testing company, is offering 99 basis points more than Libor for a $300 million five-year syndicated loan, people familiar with the matter said April 25. Uni-President China Holdings Ltd., a unit of Taiwan’s largest food company, is paying 115 basis points to borrow as much as $200 million, a person familiar with the matter said in March.

Margins of at least double those are spurring local banks to look elsewhere. Seventeen of the 42 lenders on Qantas’s A$780 million loan in April were Taiwanese, with the Australian carrier paying 230 basis points over the bank bill swap rate, according to Bloomberg data. CT Corp in March attracted 18 Taiwanese lenders out of a total 39 on a $750 million loan for its buyout of Carrefour in Indonesia by paying a margin of 500 basis points over Libor, the data show.

Bank of Taiwan has been the most active lender from the island so far this year, helping to arrange 31 deals totaling $1.4 billion in the Asia-Pacific region outside Japan, Bloomberg data show. Taishin Financial Holding Co. was the second-biggest arranger, with Land Bank of Taiwan third.

China Branches

Taiwan relaxed curbs on banks’ investments and operations in China in September 2011, allowing them to lend to mainland individuals and institutions. That’s been a significant driver of overseas deals, said Lee at Cathay United, one of 11 Taiwanese banks with branches on the mainland.

The Financial Supervisory Commission also urged lenders that year to expand faster in the world’s second-biggest economy as competition eroded returns at home. Taiwan’s banks have the narrowest net interest margin in the Asia-Pacific region excluding Japan, data compiled by Bloomberg show.

China Gas Holdings Ltd., which operates and manages natural gas distribution pipelines, increased the size of a three-year loan to $450 million from $250 million after 23 banks, mainly Taiwanese, pledged more than $600 million to the deal, a person familiar with the matter said April 9.

More Aggressive

“Taiwanese banks will definitely continue looking for overseas deals to improve their return on equity and return on assets,” said Amy Tsao, the head of investment banking for Taiwan at Nomura Holdings Inc., an arranger of the China Gas loan. They will probably become more aggressive in underwriting small-to-medium-size loans in the international market of up to $200 million, she said.

International banks still have an important role to play in arranging syndicated loans for Taiwanese lenders, added Tsao, because of their unfamiliarity with overseas clients.

Bank Sinopac, Mega International Commercial Bank Co., Taipei Fubon Commercial Bank Co. and Taiwan Cooperative Bank are becoming more active lenders. The banks are helping arrange a four-year facility for China-backed conglomerate Citic Pacific Ltd., which increased the loan size to $330 million from $200 million after nine other Taiwanese banks joined, a person familiar with the matter said today.

While Taiwanese banks have big ambitions in the Asia-Pacific region, they aren’t blindly chasing high-yield assets, according to Cathay United’s Lee.

“We don’t care about league table rankings,” Lee said. “What we focus on now is whether a loan deal can bring about a long-term relationship with a client and whether there are cross-selling opportunities.”

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