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Fitch: Taiwan Banks' China Exposures to Almost Double By 2016
July 24, 2014 / 12:36 AM / 3 years ago

Fitch: Taiwan Banks' China Exposures to Almost Double By 2016

(The following statement was released by the rating agency) TAIPEI/SINGAPORE, July 23 (Fitch) Taiwanese banks' exposures to China have grown rapidly since 2010, and should almost double to 13% as a proportion of system assets by 2016, says Fitch Ratings. This means that Chinese factors will become an increasingly important ratings consideration over the coming three years for several large banks with higher mainland risk concentrations. China exposure will increasingly become a downside rating factor for Taiwanese banks should their exposures grow excessively without generating strong profit, as capital is inadequate to withstand potential China shocks. Taiwanese banks' mainland Chinese exposure has grown by 135% (CAGR) since 2010, due to strong mainland credit growth and regulatory easing on Chinese lending by Taiwan's Financial Supervisory Commission (FSC). Fitch estimates gross exposure amounted to USD90bn at end-2013. Notably, this is USD25bn higher than the figures used by the Central Bank of the Republic of China, as the Fitch estimate captures indirect exposures where credit is extended in third countries but where the capital is ultimately used in China. For the Taiwanese banking system as a whole, this means that Fitch estimates gross China exposures at 7% of total assets, versus the regulator-defined figure of 3.5%. At the individual bank level, there are several large Taiwanese lenders where the China exposure is in excess of 10% including Mega International Commercial Bank, Bank SinoPac, Taipei Fubon Bank and Shanghai Commercial and Savings Bank. Fitch expects the rate of growth of Chinese lending to slow in the next few years, while the pace will still be sufficient to expand Taiwan's banking sector exposure significantly. For the aforementioned banks, Fitch forecasts gross exposure to rise to between 20%-25% by 2016. Such an increase will be sufficient to substantially alter the geographic distribution of these bank's assets, meaning that Chinese factors will become an increasingly relevant ratings factor within the next two to three years. All else being equal, the rapid expansion of China exposure will raise the potential for downside ratings risks. There is limited risk in the short term, while the potential build-up of Chinese branches and subsidiaries by Mega, SinoPac, Taipei Fubon and Shanghai Commercial will pose operational challenges. Taiwanese banks do not have a proven track record of sustaining profitable offshore operations. Furthermore, asset-quality issues may become a concern as these banks expand into sectors without established credit data histories and where there are prevailing governance and transparency concerns relative to their home market. See Special Report "Taiwanese Banks' Exposures to China" (published on 22 July 2014) for further analysis, including details on individual Taiwanese bank's China exposures and the growing liquidity contagion risks between Taiwan and the mainland. Contacts: Jonathan Lee Senior Director Financial Institutions +886 2 8175 7601 Fitch Ratings Limited Suite 1306, No. 205 Tun Hwa North Road Taipei, Taiwan Cherry Huang Director Financial Institutions +886 2 8175 7603 Justin Patrie Senior Director Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Taiwanese Banks’ Exposure to China here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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