Taiwanese Banks Lend Over US$31 B. to Clients in China

Taipei, Oct. 11, 2010 (CENS)--The offshore banking units (OBUs) of Taiwan's domestic banks extended loans of US$32.6 billion as of the end of July, of which 47% went to Asia, with China taking the lion's share of 80% or US$12.26 billion (about NT$400 billion), according to the Financial Supervisory Commission (FSC).

Some say that large enterprises in Taiwan borrow from domestic banks and then transfer part of the loan to affiliates in China. So, including such transferred loans, China would have borrowed more than NT$1 trillion or US$31.25 billion from Taiwan. However, some say that the value is unknown for the exact amount of loans flowing to Taiwanese firms in China through their parent companies in Taiwan is not tallied.

To help domestic banks minimize risk overseas, the FSC demands the banks to strictly control lending to overseas clients and keep a close eye on their operations. Currently overseas branches of Taiwanese banks are located mainly in Hong Kong and Vietnam, but Taiwanese enterprises can borrow from the banks at home for overseas operations in China, the United States and Europe.

Insiders say, with Taiwan's inking of ECFA (economic cooperation framework agreement) with China helping to drive financial activities between the two sides, it's critical to map out measures to minimize potential risks.