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Taiwan Bank Executes First Stage Of I-Rate Hedge

Taipei-based Dah An Commercial Bank recently entered a TWD1 billion (USD29 million) three-year interest-rate swap as a partial hedge for its TWD5 billion fixed-rate car loan portfolio. It is considering entering further swaps next year to convert its entire fixed rate loan portfolio into a synthetic floating-rate asset as interest rate hikes are expected in 2002, when Taiwan's economy is tipped to recover, according to Darren Chiu, fixed income trader at the bank in Taipei. In the recent swap Dah An pays a fixed rate of 2.85% and receives the floating 90-day commercial paper rate, which was at 2.5% last Monday.

The bank forecasts interest rates will rise by the third quarter of next year and is considering pulling the trigger on similar swaps in the coming months. "We'll look for an appropriate time to further hedge," said Chiu. He continued that Dah An will enter further swaps in about six months, putting on positions gradually, probably TWD300 million at a time.

Citibank and J.P. Morgan were counterparties for the transaction. Chiu said price is the most important factor in choosing a counterparty, adding, "we'll use whoever offers us the most competitive rates". Sandy Chen, spokeswoman at Citibank in Taipei, did not return calls. An official at J.P. Morgan declined comment, citing rules preventing discussion of client matters.

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