A number of factors have combined to encourage Taiwanese lenders to push more aggressively into China. Banks like CTBC Bank, Fubon Bank and Mega International Commercial Bank are facing excessive market liquidity and keen competition at home, tempting them to try to grow their existing banking relationships with Chinese clients.
To pursue these ambitions, banks are moving staff closer to their clients. CTBC Bank has transferred Kevin Tsai of its global structured finance division to Hong Kong. Tsai’s focus in Taipei was on clients in Hong Kong and China and remains so in Hong Kong, but being in the special administration region gives him a chance to be more plugged into the market on a daily basis, said a source at the bank.
Another way Taiwanese banks are strengthening their China credentials is by acquiring franchises on the mainland. For example, last year Fubon Bank acquired a controlling 80% stake in Shanghai-based First Sino Bank, changing its name to Fubon Bank (China).
CTBC Bank is also rumoured to be looking at acquiring a stake in a Citic Bank subsidiary in China.
“CTBC has shown ambition in expanding its onshore presence in China, but currently it has only one branch in Shanghai while Guangzhou and Shanghai FTZ [free trade zone] branches are awaiting CBRC’s [China Banking Regulatory Commission] approval,” said Ginger Kuo, an analyst who covers Taiwanese banks for Moody’s, adding that the bank is looking at organic, as well as M&A. routes to faster and broader expansion in the country.
Small and selective
Not that Taiwanese banks are just looking to take on a greater number of deals. They are also hoping to win more underwriting mandates, rather than just providing liquidity once a loan has gone into general syndication.
For example, in November 2013 CTBC came in as a lead arranger for a $180m dual currency loan for China Universal Leasing. But this year it is conducting a roadshow for the borrower along with other banks.
“One way [we grow our relationship] is we participate in one deal, maybe one or two times, the third time we have the chance to know the customers and are confident to underwrite,” said a senior Taipei-based loans banker.
Examples of Chinese loans being syndicated, led by lenders from Taiwan, include Samson Paper’s HK$500m ($64.5m) loan and Texhong Textile Group’s $90m three year trade.
While these deals are modest in size, Taiwanese banks would understandably start small when it comes to taking underwriting risks, said bankers.
Pushing onshore
But it’s not just offshore where Taiwanese banks are making their presence felt, they are also moving onshore to fund Chinese corporates in dollars.
“In general they are still quite active in China despite the economic slowdown,” said a North Asia head of loan syndications. “They are a natural match [for the onshore China loan market], they speak Mandarin. They have a lot of US dollars,” he said.
“While they are cautious on some sectors like real estate, we hear they are being quite aggressive as there is a lot of [dollar] liquidity from Taiwanese banks onshore [in China].”
A beneficiary of this trend is a $300m onshore loan by Succeed Venture, which is proving to be a hit among Taiwanese lenders thanks to its attractive yield and security package.
But as far as supporting onshore borrowers in local currency loans is concerned, Taiwanese banks are lagging. This is because these banks are competing with well entrenched Chinese counterparts, making it harder to attract deposits, said an analyst.
“To grow meaningful market share, deposit taking is one of the biggest challenges, and Taiwan banks at present don’t have that big a name or well known franchise [in China],” said the market participant.
She cited CTBC, Mega and Bank of Taiwan as banks rich in renminbi and which have growth potential for onshore China deals.
Challenges aplenty
“Most of them [Taiwan banks] still join as participant,” said a Hong Kong-based head of loans syndicate. “There are a few with bigger ambitions to lead deals but this is a very competitive market. They will be competing with some banks with stronger relationships with other banks and clients here. They also have higher price requirements. Their niche will be corporates that have Taiwanese connections.”
When selecting clients, these banks will usually look for a margin of at least 200bp, and listed credentials to ensure transparent and reliable financial information, said the senior Taipei-based banker. Their approach will definitely be more top down, he said.