ICBC whips out wallet as Taiwan rules ease

China's biggest bank is quick off the mark in taking advantage of newly relaxed restrictions on mainland holdings in island's lenders

PUBLISHED : Wednesday, 03 April, 2013, 12:00am
UPDATED : Wednesday, 03 April, 2013, 3:28am

Just a day after Taiwan's financial regulator said it will relax rules to allow mainland banks to take bigger stakes in local lenders, the first sale of a larger stake in a Taiwanese bank to a mainland lender has been announced.

Taiwan's SinoPac Financial Holdings will sell 20 per cent of its banking unit to Industrial and Commercial Bank of China (ICBC), it said yesterday. SinoPac will issue 1.8 billion shares to ICBC in a private placement, making ICBC a strategic investor in the Taiwanese lender.

Taiwan's Financial Supervisory Commission announced on Monday that it will let mainland banks own up to 20 per cent of some financial institutions, raising the limit from 5 per cent in an effort to promote cross-strait ties.

Mainland banks will be allowed to take a 15 per cent stake in an unlisted bank or holding company and 10 per cent in a listed bank or holding company. A direct stake in a bank that is a subsidiary of a holding company could be as much as 20 per cent.

Mainland banks will also be allowed to invest in Taiwanese stocks in the near future under the mainland's qualified domestic institutional investor (QDII) programme, the commission said.

The raising of the cap on mainland banks' stakes in Taiwan's financial institutions should facilitate trade finance and allow the banks to gain experience operating in a deregulated interest rate environment, analysts say.

It will give mainland banks "a more meaningful" stake in Taiwanese lenders and is expected to boost demand for asset management, said Guo Tianyong, a professor at the Central University of Finance and Economics.

Zhang Jianguo, president of China Construction Bank (CCB) told the Post in an interview last month the bank hopes to take a controlling stake in a small Taiwanese lender and increase co-operation with large banks.

CCB got the nod from Taiwan's regulator last month to open a branch in Taipei, becoming the third mainland bank to operate a branch on the island after Bank of China and Bank of Communications.

Zhang said investment in Taiwanese financial institutions would hopefully boost demand for mainland banks' asset management and trust services.

"The Taiwanese banking market is stable, but interest margins and returns are comparatively low," he said.

Standard & Poor's said in a report last month the profitability of Taiwan's banking sector is "mediocre" compared with that of its peers in Asia. The island's banks have the second-narrowest net interest margin (NIM) - the difference between loan income and the cost of funds - in the Asia-Pacific, after Japan.

Yang Zaiping, vice-chairman of the China Banking Association, said: "Mainland banks could learn how to operate under an environment of liberalised interest rates by participating in the Taiwan market, trying to strengthen intermediary services, as they are unable to rely on interest margin on the island."

In a State Council meeting last week, mainland policymakers pledged to "take further steps in interest rate as well as currency liberalisation".

The People's Bank of China allowed banks greater flexibility last year to set interest rates, resulting in fiercer competition to attract depositors and borrowers.