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Taiwan's Cathay Financial says set aside T$1.4 billion for derivative loss provisions
[TAIPEI] Cathay Financial Holdings , Taiwan's No1 financial holding firm, said on Tuesday it has set aside T$1.4 billion (S$58.77 million) in provisions to cover potential losses from customer defaults on a popular yuan derivative trading product.
The firm's banking unit, Cathay United Bank, is one of a number of Taiwanese banks that face losses from defaults on a product once seen as a sure bet for investors after the recent slide in China's currency.
The combined losses in the banking industry could run to hundreds of millions, or even billions, of US dollars, analysts have estimated.
"We think these provisions should be enough, given the current market situation," president CK Lee told reporters, speaking on the sidelines of a briefing in Taipei.
The product, known as target redemption forward (TRF) contracts, became popular with small corporate customers following its introduction in 2013. It pays the holder a monthly income so long as the yuan remains above a trigger price against the dollar, but if the yuan falls, the investor has to pay out.