Taiwan banks’ exposure to China declines for the sixth consecutive quarter

Lending extended by Taiwanese banks to China as of the end of March fell further, marking the sixth consecutive quarter of decline at a time when Taiwan’s government has asked the local banking sector to tighten their risk control on their exposure to the mainland market, according to the local central bank.

Despite the decline, the bank said that China retained the title as the second largest debtor to Taiwan on a direct risk basis, trailing the United States on the back of a fall in Taiwanese banks’ exposure.

As of the end of March, outstanding international claims by Taiwanese banks to China on a direct risk basis stood at about US$43.2 billion, down US$6 billion or 12.12 percent from the end of December, the statistics showed.

Taiwan’s exposure to the U.S. on a direct risk basis stood at US$64.59 billion as of the end of March, keeping Washington as the largest debtor to Taipei, the data indicated.

On an ultimate risk basis, which calculates a country’s consolidated debts after risk transfers, however, China remained the largest debtor to Taiwan, topping the U.S. as of the end of March.

Taiwanese banks’ lending extended to China on an ultimate risk basis recorded a drop to reach US$62.1 billion, down US$2.9 billion or 4.39 percent from a quarter earlier, but the figure surpassed the US$61.9 billion in Taiwan’s exposure to the U.S., the statistics showed.

Compared with a peak recorded at the end of September 2014, Taiwan’s exposure to China on an ultimate basis as of the end of March fell about US$32 billion, which was equivalent to the cost of constructing 19 Taipei 101 towers, according to the data.

The central bank said the fall in Taiwan’s bank lending to China showed the efforts made by the Financial Supervisory Commission, the top financial regulator in the country, have paid off. The Commission has urged banks to turn prudent when they extend loans to China-based borrowers, including Taiwanese business people there, in a bid to prevent unwanted risks, especially as China’s economy is slowing.

In terms of total outstanding international claims by Taiwanese banks, as of the end of March, the amount on a direct risk basis reached US$355.6 billion, up US$11 billion or 3.2 percent from a quarter earlier.

On an ultimate basis, Taiwan’s total international claims also rose US$12.7 billion or 3.95 percent from a quarter earlier to US$334 billion.

After the U.S. and China on a direct risk basis, Hong Kong and Luxembourg ranked as the third and the fourth largest debtor to Taiwanese banks; Taiwanese banks extended US$34.81 billion and US$34.03 billion to them, respectively, as of the end of March.

Japan came in fifth with US$31.75 billion in debt, followed by the United Kingdom with US$17.84 billion, the British West Indies with US$14.04 billion, Singapore with US$11.82 billion, the Cayman Islands with US$11.67 billion, and Australia with US$11.15 billion.

Source: China Post