Euromoney: Egypt sukuk law an odd priority
1 February, 2013FT beyondbrics: Goldman goes it alone in Sinopec deal
11 February, 2013Financial Times Beyondbrics, February 8 2013 – to see it at the FT click here
Taiwan’s financial services industry enjoyed a landmark moment this week when cross-border renminbi trade settlement services were officially launched in the island state. The prize: the chance to create an offshore RMB market in Taiwan to mirror that of Hong Kong.
Early momentum was nothing to write home about. Standard Chartered Taiwan proudly announced that it had completed “nearly Rmb6m”, or less than $1m, of RMB-denominated transactions for several Taiwanese corporates on day one, February 6. But the potential is considered to be great. Frances Cheung, senior strategist for Asia ex-Japan at Credit Agricole CIB, points out that in Hong Kong, RMB deposits peaked at 10.4 per cent of total deposits and stand at 9 per cent today; were Taiwan to find one tenth of its deposits in RMB, that would equate to Rmb525bn of assets.
Few expect to see quite that much activity – the RMB is no longer considered a sure-fire appreciation bet, for a start – but Nathan Chow, economist at DBS Bank, tells beyondbrics he expects the RMB liquidity pool in Taiwan to reach Rmb140bn, or 2 per cent of total local deposits, by the end of 2013. Then it’s up to Taiwan’s banks to make the best of it. “Whether Taiwan can further enhance its RMB liquidity pool depends on the pace or ability of the creation of RMB-denominated investable assets,” he says.
Taiwan’s banking sector needs this, and then some. In an overbanked market, in an economy desperately reliant on a healthy US to sustain its exports, and with a lucrative line in fees amputated by credit card reform in 2009, any new line of income is important. While warmer cross-straits relations have benefited many areas of the Taiwan economy since President Ma Ying-jeou took office in 2008, bankers feel their sector has been slow to benefit, with less access to mainland business than they had hoped. So the chance to build an offshore RMB centre, and to be an integral part of the internationalisation of the Chinese currency, has a lot of appeal.
“Offshore RMB business can open doors to new cross-border RMB opportunities for Taiwanese banks, similar to how it has been for banks in Hong Kong” since the opening of the offshore market there in 2010, says Linan Liu, Greater China rates strategist at Deutsche Bank. She says opportunities range from deposit taking and lending to FX, fixed income, equities and asset management, both domestically and cross-border.
Taiwanese banks are certainly gunning for the business: Bank SinoPac is offering a three-month RMB savings product at 6.66 per cent interest, and First Commercial Bank 6.68 per cent, roughly double the norm on the mainland.
But there is a flip-side to this opportunity: increased access to China is reciprocal, and Taiwanese banks now face the alarming prospect of China’s behemoth lenders moving into competition with them. After all, the only reason an offshore centre is feasible in Taipei is because Bank of China is there offering RMB clearing services. And the day after RMB trading began in Taiwan, China Construction Bank was given clearance to set up its first branch in the Taiwanese Capital (Bank of Communications is already there). Taiwan’s banks face both a new opportunity and a new threat.
