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Financial services to Taiwan

(Last updated: 17 Sep 2013)

Trends and opportunities

The market

Taiwan’s location at the centre of the Asia-Pacific region is advantageous, as highlighted by the impact across all sectors (including financial services) of the rapid economic growth of China in recent years. The gradual loosening of the flow of goods, capital, and personnel between Taiwan and China is enabling Taiwan to make better use of this geographical advantage to attract international investment and the participation of international institutions.

In January 2002, Taiwan became the 144th member of the World Trade Organization (WTO). This has allowed Taiwan to compete internationally through barrier-free access to the economies of other WTO members and the lowering of domestic consumer prices. In the World Economic Forum's Global Competitiveness Report 2012-2013, Taiwan ranked 13th of 144 economies.

Banking

Deposit-taking institutions held a total of over US$1.57 trillion in assets at the end of 2012, climbing by over three per cent from the previous year’s end. Total loans and deposits amounted to US$721 billion and US$1.08 trillion, respectively. Compared to the end of the previous year, total loans rose slightly by 6.7 per cent, while total deposits increased by 5.6 per cent. Domestic banks held nearly 74 per cent of assets and deposits, and had a share of more than 90 per cent of loans in all deposit-taking institutions.

Total outstanding loans extended by the current 38 domestic banks amounted to US$666 billion at the end of 2012, an increase of US$24 billion as compared to 2011. Meanwhile, the Non-performing Loans (NPLs) of all banks totalled US$3.3 billion, an average NPL ratio of 0.44 per cent.

There are 15 financial holdings companies and 38 domestic banks in Taiwan totalling 3,416 branches. 30 foreign banks have been granted licences, which accounts for 51 branches. ANZ has completed its takeover of RBS and operates 13 branches across Taiwan.

(Source: Banking Bureau, Financial Supervisory Commission, Executive Yuan, R.O.C.)

Capital markets

The Taiwan Stock Exchange (TWSE) is the primary equities market in Taiwan. In addition to the TWSE, there are two other regulated markets:

  • The Gre-Tai Securities Market (GTSM) – the market for bonds and small-and-medium sized enterprises
  • The Taiwan Futures Exchange (TAIFEX) – the principal derivatives market in Taiwan

Every trade is cleared and settled by the relevant market. The Taiwan Depository and Clearing Corporation (TDCC) provides the custodian and book-entry services.

At the end of 2012, the total market capitalisation of the 809 companies listed on the TWSE amounted to US$713.4 billion. In 2011, the ratio of Taiwan market capitalisation to GDP was 139.8 per cent. In 2012, the total trading value was US$676 billion. The market price-to-earnings ratio (P/E ratio) of the Taiwan market was 15.76, fourth among primary Asian exchanges, making it an attractive marketplace for investors.

In 2012, foreign and mainland Chinese investors had bought US$159.5 billion and sold US$154.7 billion worth of shares on the TWSE for the year to date, making for a cumulative net inward investment of US$4.8 billion.

At the end of 2012, foreign investment accounted for 15.51 per cent of the GTSM’s market capitalisation.

Between 1992 and 2012, the cumulative net inward remittances by offshore foreign institutional investors, mainland China investors, offshore overseas Chinese, and offshore foreign nationals in connection with investments made on the Taiwan securities market was approximately US$163.33 billion, up from US$155.97 billion as of the end of 2011.

(Source: Taiwan Stock Exchange, 2013)

Funds management

The primary role in Taiwan for the funds management industry is held by Securities Investment Trust Enterprises (SITE) and Securities Investment Consulting Enterprises (SICE). The industry was hit by the global financial crisis with substantial contraction due to the declining investment assets and redemption pressures from investors.

In 2012, the number of domestic SITEs was 38. The number of onshore public offering funds was 623, with a fund size of US$61.7 billion.

With the financial liberalisation and development trends in international investment, up to May 2013, the accumulated amount of offshore funds reached 1,023, and total capital held by domestic investors increased to US$95 billion. This is indicative of domestic investors actively extending their investments to overseas markets for diversified investment alternatives. Additionally, this gave an opportunity for domestic securities investment institutions to learn from foreign asset management institutions. This constructive interaction allowed domestic asset management institutions to compete with the world’s best asset management companies, and gave an opportunity to foreign institutions to develop the Taiwan market. Ultimately, investors benefit from more choices in the market.

(Source: The Securities & Investment Trust and Consulting Association of the R.O.C, 2013)

The wealth management sector has also become attractive in recent years, due to a growing elderly population and a decreasing number of children in families. Households have more disposable income and there is demand for new financial products offering reasonable returns. This has given banks in Taiwan a chance to build up their wealth management business, and spurred them to design new financial products to satisfy customers’ needs.

Tariffs, regulations and customs

Regulations

Taiwan Financial Supervisory Commission

The primary objectives of the Financial Supervisory Commission (FSC) are to consolidate the supervision of banking, securities and insurance sectors, and to act as a single regulator for all of these industries. The FSC is comprised of four departments, four offices, and four bureaus (Banking, Securities and Futures, Insurance and Financial Examination).

Several important policies implemented by the FSC that have shaped the industry today include, ‘Enterprises Acquisition and Merger Law’, as well as amendments to the ‘Securities and Exchange Act’, and the ‘Company Act’. The FSC has also promoted the introduction of new financial products, and implemented many reform measures, such as the listing of exchange-traded funds (ETFs), relaxing limitations on foreign investment, streamlining foreign registration procedures, and adjusting various trading mechanisms so that they are more in line with international standards.

The Central Bank of China

The Banking Law and the Law Governing the Central Bank of China mandates that the Central Bank of China (CBC) implement monetary policy and foreign exchange regulations. The CBC adjusts the national money supply to promote its policy goals of price stability and sound economic growth. The CBC also concerns itself with the sound operation of banks and exchange rate stability.

The Central Deposit Insurance Corporation

In 1985, the Central Deposit Insurance Corporation (CDIC) was formally established in accordance with the Deposit Insurance Act. CDIC provides insurance coverage of up to US$31,000 for eligible deposits.

Regulations Governing Offshore Funds

To better safeguard investor interests, the FSC recently amended the Regulations Governing Offshore Funds. Key amendments include:

  • Changes to requirements for investment in offshore funds through securities brokers under foreign securities brokerage agreements
  • New provisions setting out the matters for which a master agent must file for approval or file a report
  • A requirement for fund intermediaries to disclose distribution-related expenses information
  • Prohibiting the payment or acceptance of distribution-related expenses other than those set out in the distribution agreement
  • Rules governing the private placement of offshore funds have been strengthened

The FSC has also recently lowered the percentage limit for domestic investment in any individual publicly-offered offshore fund from 90 per cent to 70 per cent. This move was made to ensure that the offshore funds in which domestic investors invest are actually international in character and to safeguard the interests of domestic investors. However, if the jurisdiction where a publicly-offered offshore fund is registered has been recognised and announced by the FSC pursuant to Article 23, paragraph 2 of the Regulations Governing Offshore Funds, the limit may be raised to 90 per cent. The offshore jurisdiction in question must also have conducted a fund-related regulatory mapping exercise with the FSC and entered into an agreement providing for cooperation in funds supervision. Additionally, the FSC have set a new restriction that the percentage of the investment in any individual, privately-placed offshore fund that is contributed to by domestic investors may not exceed 90 per cent of the said offshore fund’s net asset value.

Marketing your products and services

Market entry

Opportunities exist across the sectors – from fund management, banking and derivatives, to insurance. Before entering the market it is essential to consult and research thoroughly. There are regulatory requirements that must be observed when conducting business and marketing activities in Taiwan.

Market and distribution channels vary from product to service and Austrade can assist Australian exporters to assess the best market entry method.

Links and industry contacts

Government, business and trade resources for Taiwan

The Bankers Association of the Republic of China – www.ba.org.tw/index-eng.aspx
Central Bank of China – www.cbc.gov.tw/mp2.html
Central Deposit Insurance Corporation – www.cdic.gov.tw/mp.asp?mp=2
Financial Supervisory Commission – www.fsc.gov.tw/Layout/main_en/index.aspx?frame=16
GreTai Securities Market – www.otc.org.tw/en
Life Insurance Association of the Republic of China – www.lia-roc.org.tw/other/engmenu.htm
Securities Investment Trust & Consulting Association of Republic of China – www.sitca.org.tw/SitcaEnglish.aspx
Taiwan Futures Exchange – www.taifex.com.tw/eng/eng_home.htm
Taiwan Securities Association – www.csa.org.tw/ENG/Welcome.htm
Taiwan Stock Exchange – www.twse.com.tw/en
The Trust Association of the Republic of China – www.trust.org.tw/eng/home/index.asp

Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.

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