Taiwanese banks are fast disappearing from loan deals with Chinese companies, the latest indication of a collective effort to cut exposure to the world’s second-biggest economy as a housing crisis rages on and geopolitical tensions linger.
(Bloomberg) — Taiwanese banks are fast disappearing from loan deals with Chinese companies, the latest indication of a collective effort to cut exposure to the world’s second-biggest economy as a housing crisis rages on and geopolitical tensions linger.
The participation rate of the island’s lenders, defined by their involvement in any syndicated or club loan to Chinese borrowers, has dropped to a record low of 1.7% this year, according to a Bloomberg-compiled data series dating back to 2010. The rate peaked at nearly 33% in 2013, before falling to 4% last year.
The slump reflects a broader move by Taiwan’s financial institutions, including industry leader Fubon Financial Holding, to pare risks in an ailing Chinese economy, a process expedited by the Covid pandemic and the ongoing property woes. The retreat also is taking place as the island gears up for a presidential election in January that is set to be one of the most fractured races ever and reshape the region’s geopolitical landscape.
Several Hong Kong-based loan bankers at Taiwanese lenders told Bloomberg News that participating in China deals is challenging due to stricter credit approval and broader instructions from headquarters to reduce risks. Many have turned to markets such as Australia and Southeast Asia to look for business, said the bankers, asking not to be identified while discussing private matters.
“Geopolitical risk is definitely on the radar after the US-China trade war, but slower economic growth, higher credit risks, and more intense competition are also the reasons behind the pullout from the market,” said Gary Ng, senior economist at Natixis SA.
However, the retreat of Taiwanese banks may not have a major impact on China’s offshore credit market as borrowers have alternative sources of funding, according to Ng.
China still commands the largest share of syndicated loans in Asia Pacific excluding Japan so far this year, with companies from the country having received $126 billion of financing, down from $152 billion in the same period a year earlier, Bloomberg data show.
–With assistance from Pui Yan Chu.
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