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Taiwanese banks have Chinese SMEs in their sights

Taiwan-based banks with clearance to open branches in China are targeting finance guarantee businesses to mainland small and middle enterprises (SMEs) as their inroads to the huge Chinese yuan market, the Economic Daily News reported yesterday.

According to sources from Taiwan's state-funded banks quoted by the newspaper, the first four banks to open branches in China — the First Bank, Taiwan Cooperative Bank, the Land Bank and Chang Hwa Bank — will apply for the rights for the branches to run SME finance guarantee businesses as independent entities allowed by the terms in the economic cooperation framework agreement (ECFA) Taiwan and China signed in summer.

The banks will charge guarantee fees in yuan instead of the U.S. dollar. The room for profit will be much better than the 1 percent by Taiwanese corporate loans or the U.S. dollar-dominated standby letters of credit provided by their headquarters in Taiwan, the newspaper added.

Their strategy is to work around the requirements that Taiwan bank branches can only start lending yuan to Taiwan businesspeople after one year of operation in which the branch turns a profit, the newspaper said.

Quoting figures by sources in the financial business, the newspaper pointed out that with around 100,000 registered Taiwanese businesses in the mainland, the demand for financing business could reach 100 billion yuan a year. Considering the general price rate of finance guarantee at 3.5 percent and taking into the account the many “rootless Taiwanese businesses” — businesses owned by Taiwanese nationals but without mother companies in Taiwan — and Taiwan-funded mainland businesses, the potential market for finance guarantees could be huge just for Taiwanese related SMEs alone.

In fact, the banks' mainland counterparts are also encouraged by the Chinese government to explore the potential of SME business in Taiwan. The SME loan businesses provided by Taiwan-based banks in the island are the most intriguing topics for Chinese delegates of bank businesspeople, the newspaper said.

They did not only visit the related departments in Taiwan's state-funded banks. Some even specifically required to visit the Taichung Bank, which has a high ratio of SME loan business.

A high-ranking official from the First Bank was quoted by the newspaper as saying that while the ECFA does not specify on the details of operation, it allows cross-strait banks to cooperate on SME finance guarantee businesses by setting up bodies to exclusively assist SMEs.

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