Taiwan to Relax Rules on Banks Investing in China - Wall Street Journal

TAIPEI—Taiwan's financial regulator will relax restrictions on Taiwanese banks investing in China, a move widely expected by market participants who are now hoping the authorities will next allow Chinese banks to invest in their Taiwanese counterparts.

The Financial Supervisory Commission said Thursday it will allow local banks to have more flexibility in their expansion in China and increase their total risk exposure in the Chinese market to 100% of their net book value.

Domestic financial institutions will be allowed to have both branches and subsidiaries in China as well as acquire stakes in more than one Chinese bank, the FSC said.

Currently, financial institutions have to choose two of three options in their China expansion plans, namely, opening branches, establishing subsidiaries, and obtaining a stake in a local bank.

"The move will mostly benefit large Taiwanese banks in speeding up their expansion in China, and help them take full advantage of the lucrative yuan business. But if the government allows Chinese banks to invest in local banks, that will benefit the whole of Taiwan's banking sector, especially second-tier banks," said Polaris International Securities Investment Trust Deputy Chief Investment Officer Simon Liu.

Mr. Liu noted that a large interest-rate spread in China—more than 3%, compared with Taiwan's 1%—also suggests bigger risk. "Opening the door wider doesn't mean all banks can win the game. Taiwanese banks definitely need to enhance their risk management to avoid default."

The new measures are likely to be effective in one to two weeks' time, an FSC official told Dow Jones Newswires Friday.

Mega Securities Assistant Vice President Alex Huang said the development is positive, but markets had already priced it in.

The financial stock index was up 0.3% at 0318 GMT after ending up 1.7% Thursday.

The FSC said it will also remove the loan ceiling for domestic lenders' branches in China and raise the cap on deposits they may take from individual customers there to 3 million New Taiwan dollars (US$103,484) from the current NT$1.5 million.

Taiwanese banks' offshore banking units will also be allowed to expand their lending business to Chinese individuals or institutions, not only to Taiwanese or foreign businesses operating in China, it said.

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