Taiwan to punish nine banks on yuan derivative business

[TAIPEI] Taiwan's Financial Supervisory Commission (FSC) said it will punish nine banks for inappropriately selling yuan derivative product to clients, in its latest effort to prevent further defaults.

Local banks have been forced to realise the losses stemming from client-traded target redemption forward (TRF). The yuan's sharp depreciation this month has turned against their clients as they had bet the currency would rise.

Banks included Citibank, Standard Chartered, Cathay Bank, CTBC Bank, Taipei Fubon Bank and Bank Sinopac will be punished, the FSC said in a statement late on Tuesday, without offering details of the punishment.

Worries of growing defaults have hit banking stocks, which are hovering at their lowest level in more than two years.

Earlier this month, sources told Reuters the FSC will require banks to set aside reserves for possible default of TRF amid sharp falls of the Chinese currency. The regulator will also ask investors to put down a 2 per cent deposit for buying such products.

The FSC recently said banks sold TW$80 billion (S$3.45 billion) in TRF contracts, halving from its peak of TW$160 billion hit in 2014.

About half of current contracts will expire in January, while the rest expires between February and June, the sources said.

Hong Kong and Taiwan are Asia's two biggest markets for TRFs, in part because of their close trade ties with China.

REUTERS