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Thanks to FEPZs, Taiwan's Domestic Banks Expected to See Record High Profits of over NT$300B. in 2014

Aug 07, 2014 | By Judy Li

Premier Y. H. Jiang recently affirmed that domestic banks have benefited from the establishment of Free Economic Pilot Zones (FEPZs). Financial enterprises have been included in FEPZ participants starting this year.

In the first half of the year Taiwan's domestic banks scored pretax profits totaling NT$179.4 billion (US$5.98 billion), for a sharp annual growth of 27%, and their profits for the full year are very likely to hit a record high of over NT$300 billion (US$10 billion).

M. C. Tseng, chairman of Financial Supervisory Commission (FSC), Taiwan's banking regulator, comments that the offshore banking units (OBUs) of domestic banks have witnessed booming businesses since they were allowed to join FEPZs at the beginning of the year.

In FEPZs, restrictions on the flow of goods, people, capital, information, and knowledge are greatly loosened. Tseng says that Central Bank Governor F. N. Perng has contributed a lot to the relaxation of OBU businesses, helping boost their growth.

To further liberalize the financial market, Tseng will keep communicating with Perng on issues regarding the issuance of two-currency credit cards, the use of offshore financial hedging tools by securities firms for proprietary businesses, permission for the integration of Chinese securities into offshore structured products, and the allowance of offshore structured notes issued by U.S. financial holding companies.

The risk coefficient ratio of offshore hedging tools for Taiwan's securities firms, currently set at 90%, will reportedly be lowered to 70% in early August.

In the Central Bank's recently published ‘yellow paper' on the banking policy, Perng points out that a stable foreign exchange policy is vital to the development of a healthy economy in Taiwan.

Perng emphasizes that Taiwan's economy depends heavily on external trade, which is usually influenced by the foreign exchange rate. As a small export-oriented island, Taiwan should adopt similar economies like Hong Kong, Singapore, and Switzerland as models for the further opening of its financial market and the adoption of stable foreign exchange policies.

Forex reserves provide liquid capital for the financing of external trade, and can help regulate demand and supply in the monetary market; so, Perng stresses, the Central Bank should operate its forex reserves cleverly.

At end of June Taiwan's forex reserves stood at US$423.4 billion, remaining the fourth-largest in the world after mainland China, Japan, and Russia. On the same date, Taiwan stocks and bonds held by foreigners totaled US$301.6 billion, equal to over 70% of total forex reserves. (JL) 


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