Financial services to Taiwan

Trends and opportunities

The market

Taiwan’s location at the centre of the Asia-Pacific region is strategically advantageous, as highlighted by the impact across all sectors, including financial services, of the rapid economic growth of China in recent years.

Taiwan is a member of the World Trade Organisation (WTO), competing 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 2015-2016, Taiwan ranked 15th of 140 economies.

For Australian business, fintech and pension reform are potential opportunities in Taiwan, in providing consulting services, products and fund management.

Banking

Deposit taking institutions held a total of over US$1.82 trillion in assets at the end of 2015, climbing by just over four per cent from the previous year’s end. Total loans and deposits amounted to US$763 billion and US$1.22 trillion, in 2015 respectively. Compared to the end of 2014, total loans rose slightly by 3.5 per cent and total deposits increased by six per cent. Domestic banks held over 75 per cent of assets and deposits and had a share of 90.7 per cent of loans in all deposit-taking institutions in 2015 (Source: Financial Supervisory Commission Banking Bureau, Financial Statistics Abstract, Deposits at General Banks and Credit Cooperatives, November 2016).

Meanwhile, the non-performing loans (NPLs) of all banks totalled US$2.3 billion, with an NPL ratio of 0.27 per cent in September 2016.

As of September 2016, there are 39 commercial banks in Taiwan of which 16 are financial holdings companies, totalling 3,426 branches. Currently, 30 foreign banks have been granted licenses and have 40 branches. ANZ is focusing on institutional banking in Asia, including Taiwan, with a focus on banking corporate and institutional clients driven by trade and capital flows particularly with Australia and New Zealand (Source: Banking Bureau, Financial Supervisory Commission Executive Yuan, R.O.C., Indicators of Banking, September 2016; ANZ News Release, October 2016).

Capital markets

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

• Gre-Tai Securities Market (GTSM) is the market for bonds and small-and-medium sized enterprises.
• Taiwan Futures Exchange (TAIFEX) is 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 2015, the total market capitalisation of the 854 companies listed on the TWSE amounted to US$765 billion, representing a decrease of 8.8 per cent compared to year-end figures for 2014. In 2015, the ratio of the Taiwan market capitalisation to gross domestic product (GDP) was 146.67 per cent and the total trading value was US$765 billion. The market price-to-earnings ratio (P/E ratio) of the Taiwan market in 2015 was 13.46, with a turnover rate of 74.45 per cent, putting Taiwan above other markets such as Singapore and the United Kingdom. Taiwan’s ranking as a centralised market among the top global exchanges in terms of turnover makes it an attractive marketplace for investors.

In 2015, foreign investors had bought US$200.1 billion and sold US$198.7 billion worth of shares on the TWSE for the year, making for a cumulative net inward investment of US$1.4 billion.

From 2011 to 2015, the total accumulated net inward remittances by Foreign Institutional Investors and Overseas Chinese and Foreign Individual Investors in connection with investments made on the Taiwan securities market was approximately US$882 billion (Source: Taiwan Stock Exchange Fact Book 2016, Taiwan Stock Exchange, May 2016).

Funds management

The funds management industry in Taiwan is operated predominantly by Securities Investment Trust Enterprises (SITE) and Securities Investment Consulting Enterprises (SICE).

As at October 2016, the number of domestic SITEs was 38 and the onshore mutual funds were 717, with a fund size of US$68.1 billion.

With the financial liberalisation and development trends in international investment, up to October 2016, the accumulated amount of offshore funds reached 1018 and total capital held by domestic investors was US$96 billion. This is indicative of domestic investors seeking to extend their investments to include overseas markets for more diverse investment alternatives.

Additionally, this gave an opportunity for domestic securities investment institutions to learn from foreign asset-management institutional practices. 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.

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.

Pension system reform

In Taiwan, four major government pension funds are currently in place to provide a basic safety net for civil servants and labours: the Public Service Pension Fund (PSPF), the Labour Insurance Fund, the Old Labour Pension Fund, and the New Labour Pension Scheme.

There is a common perception that the funds can only continue to be sustainable if invested to produce higher yields. The once tightly regulated area, characterised by a conservative low-risk and low-yield investment pattern, is set to change. Overseas investment is considered to be the most viable option to maintain the growth and sustainability of these funds.

With an aging population and a low birth rate in Taiwan, the government is currently undertaking the pension system reform by forming a Pension Reform Committee to achieve the goal of integrating and compiling different versions of pension reform drafts by May 2017. In addition, a list of reform options was proposed in September 2016, one of which was to consider adopting Australia’s superannuation model (Source: Securities Investment Trust and Consulting Association of the R.O.C., Industry Statistics, October 2016).

Fintech

The fintech phenomenon is growing on a global scale with adoption rate expected to increase rapidly in the coming years in Taiwan. To respond effectively, the Taiwan Financial Supervisory Commission (FSC) has established a digital banking environment by deregulating some financial regulations and setting up the Financial Technology Office in September 2015 to draw up fintech development in Taiwan.

FSC also released the Taiwan FinTech Development Strategy White Paper in May 2016 with the following key goals:

1. E-Payment: to double e-payment transactions within five years
2. Banking: Encourage banks and financial holding companies to adopt fintech and invest in fintech business
3. Securities: Reach online securities trading to 70 per cent and develop robot financial advisory
4. Insurance: Increase online insurance purchase and leverage Big Data application
5. Fintech talent: Transform financial professionals to deal with fintech impact and fintech talents training
6. Blockchain: Encourage the banking industry to invest blockchain research and development
7. Identify verification: Consolidate verification mechanism without the requirement to physically to visit banks for identification verification purposes.

With a number of initiatives supported by FSC, it has encouraged the banking industries to explore online business models and create new fintech services to catch up with new consumption patterns and behaviours over the next few years (Source: Taiwan FinTech Development Strategy White Paper, Financial Supervisory Commission, May 2016).

Opportunities

Opportunities exists in the following areas:

• With anticipated pension reform, there will be an increase in overseas mandate tender opportunities for international fund management companies to participate, and the demand for seeking Australian companies services on superannuation system and investment management will be expected if Taiwan will adopt the Australian model.
• Fintech, in provision of services, products and consulting.

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.

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:

• listing of exchange-traded funds (ETFs)
• relaxing limitations on foreign investment
• streamlining foreign registration procedures
• 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 (CBC) mandates the implementation of the 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 almost US$100,000 for eligible deposits (Source: Central Deposit Insurance Corporation, Deposit Insurance System, November 2016).

Rules governing offshore funds

To better safeguard investor interests and ensure commitment to the local market, the FSC amended the rules governing offshore funds, effective on 6 October 2016. In order to qualify to register new funds in Taiwan, offshore fund houses must show that they ‘contribute’ to the development of onshore asset management in Taiwan. In order to meet this requirement, there are six options:

• has established a Taiwan licensed Securities Investment Trust Enterprise (SITE) which SITE has more than NT$5 billion (approximately US$160 million) in assets under management
• has established a Securities Investment Consulting Enterprise (SICE) which SICE has more than NT$3.5 billion (approximately US$112 million) in assets under management
• has outsourced the management of at least NT$3.5 billion (approximately US$112 million) in assets to Taiwan licensed asset manager
• the amount of assets under management of the relevant offshore fund house (AUM) invested in Taiwan SITE managed funds (i.e. domestic mutual funds) reaches NT$5 billion (approximately US$160 million)
• the amount of AUM for which a Taiwan SICE acts as advisor reaches NT$14 billion (approximately US$448 million)
• the offshore fund house donates an amount equal to 0.01 per cent of average monthly AUM held by Taiwan investors in its Taiwan registered funds into a dedicated education fund.

(Source: Offshore Fund Registration In Taiwan: New Requirements, March 2016).

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. For example, any international companies who want to bid for the government pension fund project must have a branch institution or local service team in Taiwan.

Distribution channels

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

The Bankers Association of the Republic of China
Central Bank of China
Central Deposit Insurance Corporation
Financial Supervisory Commission
GreTai Securities Market
Life Insurance Association of the Republic of China
Securities Investment Trust & Consulting Association of Republic of China
Taiwan Futures Exchange
Taiwan Securities Association
Taiwan Stock Exchange
The Trust Association of the Republic of China

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