Taiwan banks to double exposure to mainland over next few years

Taiwanese banks will double their mainland exposure over the next two years after lending to the mainland climbed an annual 135 per cent between 2010 and last year, according to a report released by Fitch Ratings yesterday.

The rapid rise in exposure will test the banks' capacity to operate across the strait at a time when mainland economic growth is slowing and default risks are rising.

Taiwanese banks' exposure to the mainland hit 7 per cent or US$90 billion at the end of last year. Fitch expects the figure to top 13 per cent by 2016. Several large banks, including Mega International Commercial Bank and Bank SinoPac, have already increased their exposure to more than 10 per cent.

Risk was concentrated at the biggest banks such as Mega, SinoPac, Shanghai Commercial and Savings Bank and Taipei Fubon Bank, many of which had little experience lending offshore, Fitch said.

"Most Taiwanese banks have no proven track record of sustaining profitable offshore operations," the report said. "China exposure will increasingly become a downside rating factor for Taiwanese banks should their exposures grow excessively without generating strong profit."

The largest percentage, about 44 per cent, of lending to the mainland, has gone to Taiwanese businesses operating there.