OBUs permitted to take deposits from Mainland Chinese

This article was published by the Taiwan Headlines on September 29, 2006. It reports that the government in Taiwan plans to allow Chinese tourist to visit Taiwan by the end of 2006. In line with this plan, the Financial Supervisory Commission (FSC) recently announced that Chinese people will be able to open accounts at the offshore banking units (OBUs) of Taiwan's domestic banks.

In addition, OBUs will be able to extend loans to Chinese enterprises or people. They will also be able to issue credit cards to Chinese people in the future.

The aforementioned measures are included in the government's plan of financial internationalization, under a package of 8 major financial-market development plans. In order to promote the internationalization of Taiwan's financial industry, the government plans to extend the scope of cross-Taiwan Strait financial business undertaken by OBUs, so that OBUs can become an Asian fund manipulation center and offshore assets management center for Taiwanese businessmen, Chinese, and foreigners.

Furthermore, the government plans to increase the ceiling on the outstanding quota for credit extension and buying of accounts receivables by OBUs for Taiwanese businesses, by removing some business items from the calculation of the quota. The ceiling is now set at 30 percent of the net assets of the OBUs, including 10 percent for unsecured loans.

Of Taiwan's 44 domestic banks, 39 now have OBUs. As of the end of June 2006, overseas units of domestic banks, including OBUs, had made revenues of NT$120 billion and pre-tax earnings of NT$40 billion, with deposits from sources other than financial industry reaching US$21.9 billion.

The Financial Supervisory Commission has required overseas units of Taiwan's domestic banks to achieve annual revenue growth of 22 percent and pre-tax earnings growth of 21 percent in the next three years. This will boost their total revenue to NT$220 billion and total pre-tax earnings to NT$70 billion by 2009, with deposits from sources other than financial industry rising 8 percent every year, to US$27.5 billion.

The aforementioned liberalization for Chinese people to deposit their money with OBUs is designed to help the OBUs achieve the goals. In the future, in addition to cash, Chinese people can even deposit their jewelries, stocks and bons with OBUs for custody.

According to the Financial Supervisory Commission, reception of deposits from and credit extension to Chinese by OBUs are regarded as businesses of offshore clients, which are permitted under Taiwan's existing law. However, the government in Taiwan would like to avoid over promotion of the businesses, in order to prevent Chinese authorities from imposing control on them.

Finally, the aforementioned package of 8 financial-market development plans announced by the government in Taiwan has a duration of three years. Apart from the internationalization of Taiwan's financial industry, the plans also include gradual lowering of the market shares of state-run financial institutions, issuance of foreign currency-denominated bonds to the tune of NT$100 billion, having 250 films list their shares, and promotion of protection-type and annuity insurance products. In general, the package is a continuation of the government's second financial reform, which is designed mainly to boost the competitiveness of Taiwan's financial industry.