| TAIWAN’S EXPOSURE TO CHINA’S ECONOMY, THE LINGERING EUROPEAN DEBT CRISIS, AND THE GROWING REAL ESTATE BUBBLE IN TAIWAN ARE ALL RISKS. BUT HOW SERIOUS ARE THEY? With a new leadership in The Financial Supervisory Commission (FSC), Taiwanese banks are now continuing to explore opportunities in Mainland China, and Southeast Asia, bringing on new risks to their banks and their clients. Taiwan’s real estate market, especially in Taipei, is becoming expensive, and the impact of Europe’s lingering economic problems is impacting Taiwan’s banking sector and the consumers. But the question comes down to, “How serious are these problems, and should bankers and consumers be worried?” |  Herman Ou, Executive Vice President, Union Bank of Taiwan |
EXPOSURE TO CHINA’S ROBUST ECONOMY
As of September 2014, more than 13 Taiwanese banks have established branches or sub-branches in Mainland China, and more are expected in the coming years. Taiwan’s competitive and saturated market has compelled Taiwanese banks to find opportunities next door in China, a market that has a similar culture, roots, history, and language. Alex Tsai, Director of Risks, KPMG, says that risks for Taiwanese banks will continue to increase as Taiwanese banks continue to venture deeper into Mainland China’s market.
“While Taiwan banks increase operational proposition in the China market, growing exposure to the market becomes inevitable. The statistic released from FSC, Taiwan regulator, the exposure has reached 53 billion dollars in this Q3 2014. Though the ratio is still below the cap set by FSC at 100%, the regulator and rating agencies simultaneously warn about specific risks, in particular concentration and liquidity risks,” said Tsai.
Even though Taiwanese banks have increased their exposure in Mainland China, they have continued to do a proper job in managing liquidity and their balance sheets. Tsai adds, “The impact resulted from concentration risk is remote, Taiwan banks focus more on liquidity management by minimizing the duration mismatch of the balance sheet.”
There is still much room for Taiwanese banks to grow in China, to not only service their SMEs and corporates in Mainland, but also to perform retail banking services for local Chinese peoples. Taiwanese banks have been doing well in minimizing their risks by carefully following regulations set by the People’s Bank of China, Taiwan’s Financial Supervisory Commission, the Bank of Taiwan, and by special careful attention to credit, counterparty, and market risks.
The slowing down of China’s economy, and recent bankruptcies of major companies within China, seem to bring some potential risks to Taiwan’s banking sector. Andy Chang, Director, Taiwan’s Ratings, mentioned that although Taiwanese banks have been building a more extensive presence in China and have done well in managing their risks, China’s economic slowdown could be worrying.
“If China’s GDP drops significantly, Chinese corporates will default, which will have an impact on Taiwanese companies that work with Chinese corporates, which are increasing. So there are credit risks exposures here. There is a clear risk to Taiwan’s financial sector if China’s growth slows down, but at this point in time, it seems okay” said Chang.
THE EUROPEAN DEBT CRISIS’S IMPACT ON TAIWAN
The European debt crisis is still lingering, and has impacted exports the island exports to Taiwan. Credit risks to SMEs that are doing business in Europe have become a concern to some risk mangers in Taiwan. Mr. Herman Ou, Executive Vice President, Union Bank of Taiwan says that they continue to watch the development of the European debt crisis and take it in consideration in their credit policies.
“The lingering debt crisis in Europe is worrying. It has been going on much longer than people have expected. As we are a bank that focuses on providing financing to Taiwan’s SMEs, we do watch Europe, as many of our SMEs do trade with the European Union. When the European Union is having problems, it can impact our clients’ revenue streams,” says Ou.
Ou also mentioned that although Europe’s debt crisis impacts some Taiwanese SMEs, it isn’t nearly as important as the SMEs that do business locally and with China. “Many of our clients are doing some kind of business in Mainland China. That market to us is very important, and we monitor China’s economy and markets very closely.”
Judy Kuo, SVP & General Manager, Taiwan Business Bank, said that Europe’s debt crisis is a problem for all banks in Taiwan, but with proper risk management practices in place, it should not be a main concern for her bank and others.
RISKS IN TAIWAN’S REAL ESTATE SECTOR
The city that now boasts the priciest housing on the planet isn’t London or New York—it’s Taipei. From Q4 2008 to Q1 2014, housing prices in Taiwan’s capital city leapt 91.6%, according to Bank of America Merrill Lynch. Taiwan’s banking industry is connected with the growth of Taiwan’s real estate industry, as the Taiwanese banks provide corporates and SMEs with the financing they need for construction. Chang said, “Property prices are the largest credit risk in Taiwan, including the mortgage loans and construction loans, which are around 45% of all loans. It is definitely something that bankers should be paying attention to.”
As of September 2014, more than 13 Taiwanese banks have established branches or sub-branches in Mainland China, and more are expected in the coming years. Taiwan’s competitive and saturated market has compelled Taiwanese banks to find opportunities next door in China, a market that has a similar culture, roots, history, and language. Alex Tsai, Director of Risks, KPMG, says that risks for Taiwanese banks will continue to increase as Taiwanese banks continue to venture deeper into Mainland China’s market.
“While Taiwan banks increase operational proposition in the China market, growing exposure to the market becomes inevitable. The statistic released from FSC, Taiwan regulator, the exposure has reached 53 billion dollars in this Q3 2014. Though the ratio is still below the cap set by FSC at 100%, the regulator and rating agencies simultaneously warn about specific risks, in particular concentration and liquidity risks,” said Tsai.
Even though Taiwanese banks have increased their exposure in Mainland China, they have continued to do a proper job in managing liquidity and their balance sheets. Tsai adds, “The impact resulted from concentration risk is remote, Taiwan banks focus more on liquidity management by minimizing the duration mismatch of the balance sheet.”
There is still much room for Taiwanese banks to grow in China, to not only service their SMEs and corporates in Mainland, but also to perform retail banking services for local Chinese peoples. Taiwanese banks have been doing well in minimizing their risks by carefully following regulations set by the People’s Bank of China, Taiwan’s Financial Supervisory Commission, the Bank of Taiwan, and by special careful attention to credit, counterparty, and market risks.
The slowing down of China’s economy, and recent bankruptcies of major companies within China, seem to bring some potential risks to Taiwan’s banking sector. Andy Chang, Director, Taiwan’s Ratings, mentioned that although Taiwanese banks have been building a more extensive presence in China and have done well in managing their risks, China’s economic slowdown could be worrying.
“If China’s GDP drops significantly, Chinese corporates will default, which will have an impact on Taiwanese companies that work with Chinese corporates, which are increasing. So there are credit risks exposures here. There is a clear risk to Taiwan’s financial sector if China’s growth slows down, but at this point in time, it seems okay” said Chang.
THE EUROPEAN DEBT CRISIS’S IMPACT ON TAIWAN
The European debt crisis is still lingering, and has impacted exports the island exports to Taiwan. Credit risks to SMEs that are doing business in Europe have become a concern to some risk mangers in Taiwan. Mr. Herman Ou, Executive Vice President, Union Bank of Taiwan says that they continue to watch the development of the European debt crisis and take it in consideration in their credit policies.
“The lingering debt crisis in Europe is worrying. It has been going on much longer than people have expected. As we are a bank that focuses on providing financing to Taiwan’s SMEs, we do watch Europe, as many of our SMEs do trade with the European Union. When the European Union is having problems, it can impact our clients’ revenue streams,” says Ou.
Ou also mentioned that although Europe’s debt crisis impacts some Taiwanese SMEs, it isn’t nearly as important as the SMEs that do business locally and with China. “Many of our clients are doing some kind of business in Mainland China. That market to us is very important, and we monitor China’s economy and markets very closely.”
Judy Kuo, SVP & General Manager, Taiwan Business Bank, said that Europe’s debt crisis is a problem for all banks in Taiwan, but with proper risk management practices in place, it should not be a main concern for her bank and others.
RISKS IN TAIWAN’S REAL ESTATE SECTOR
The city that now boasts the priciest housing on the planet isn’t London or New York—it’s Taipei. From Q4 2008 to Q1 2014, housing prices in Taiwan’s capital city leapt 91.6%, according to Bank of America Merrill Lynch. Taiwan’s banking industry is connected with the growth of Taiwan’s real estate industry, as the Taiwanese banks provide corporates and SMEs with the financing they need for construction. Chang said, “Property prices are the largest credit risk in Taiwan, including the mortgage loans and construction loans, which are around 45% of all loans. It is definitely something that bankers should be paying attention to.”
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