Taiwan’s banks cut China exposure to record low as tensions rise

TAIWANESE banks have slashed their exposure to China to the lowest level in at least a decade, as increasingly fraught ties across the Strait deter lenders from expanding in the world’s second-largest economy. 

Locally registered banks in Taiwan have cut back their total lending, investments and interbank transactions in China to US$34.6 billion as of the end of March, an 18 per cent decline from the same time last year, according to data from Taiwan’s Financial Supervisory Commission on Tuesday. The figures show the lenders’ exposure across the strait has fallen for eight straight quarters to the lowest amount since records begin in 2013. 

Among those three areas of exposure, investments shrunk the most, down 28.3 per cent over the past year. 

Banks’ risk-management committees are focusing on diversifying their exposure in terms of country and industry, according to Tong Chen-chang, deputy chief of the FSC’s Banking Bureau. He was speaking at a briefing on Tuesday. 

The pandemic may have also affected banks’ activities in China, with almost all travel links severed or severely restricted for three years from the beginning of 2020.

Taiwanese banks’ expansion into the fast-growing Chinese market, known locally as the “Go West” strategy, has gone into reverse in recent years. The most recent Taiwanese bank to expand in China was the Shanghai Commercial Bank when it opened a new branch in Wuxi in 2018, according to Tong. Land Bank of Taiwan, Cathay United Bank and the Bank of Taiwan have all previously received permission to open additional branches in China but have yet to do so. 

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Taiwanese banks’ growing caution on the Chinese market is in line with other industries. New investments in China by Taiwanese companies, predominantly manufacturers, declined just over 10 per cent in the first quarter, Taiwan’s Investment Commission said last month. That stands in sharp contrast to a rapid increase in investment elsewhere. Total Taiwanese overseas investment, excluding China, surged 240 per cent to US$6.9 billion in the first quarter, the government’s data showed. BLOOMBERG