Taiwanese banks are placing their faith in RMB-denominated products to drive interest in offshore banking units (OBUs) after a relaxation of rules this year.
Bank SinoPac, Citibank, E.Sun Bank and Taishin have all expressed interest in adding RMB-denominated qualified foreign institutional investor (RQFII) funds to their OBU platforms to provide access to mainland China’s onshore securities market.
The Financial Supervisory Commission (FSC) introduced liberalisations at the start of this year as part of the island’s plan to establish free economic pilot zones to foster a more investor-friendly environment onshore.
This included expanding the scope of financial products and services available through OBUs, first introduced in 1983 and chiefly used by companies registered offshore to facilitate trade finance.
Before the deregulation, RQFII products and any offshore funds investing in China were prohibited on the OBU platform, despite Taiwan having become the second largest offshore RMB market with deposits of Rmb53 billion ($8.6 billion) as of this June.
But restrictions against RQFII products were lifted in January. Chen Ting-yu, a spokeswoman for Bank Sinopac – one of the top six banks in Taiwan by OBU assets – confirmed the bank was planning to add RQFII products onto its OBU platform.
Similarly Ada Chen, vice-executive president in the wealth management department of Taishin International Bank, said it planned to expand its RMB product range, including high-yield bonds, balanced funds and equity funds.
At present, Taishin has RMB funds from ChinaAMC and China International Fund Management (HK), JP Morgan’s China joint venture, on its shelves.
Taishin's Chen noted that the bank would add other offshore securities previously prohibited to its OBU platform, including structured notes, structured products and exchange-traded funds.
Moreover, Fubon Bank – which has about 1,000 funds authorised for sale on its OBU platform – is seeking to add RMB-denominated products, hedge funds and structured products.
Relaxations of the OBU system form part of a move by the FSC to attract overseas money to Taiwan and build a wealth management centre.
Taishin’s Chen points out that many wealthy Taiwanese have set up family trusts, foundations or companies overseas. Together with wealthy mainland Chinese investors, they make up the main potential target group for OBUs.
“Maybe these clients are served by our overseas branches, but the new [OBU] product offering may attract them to open an account in Taiwan,” she said.
However, OBUs are only available to non-Taiwanese residents. As such, professional (including high-net-worth) and institutional investors are not eligible to open an OBU account if they are registered as Taiwanese residents.
Industry players agree that restricting OBU accounts in this way makes little sense. Sophia Cheng, CIO of Cathay Financial Holdings, is among those to have questioned this policy, on the grounds that the real demand will come from these very people.
But one executive at a Hong Kong fund house which partners Taiwanese banks on OBUs noted that it had expanded its footprint on the island in anticipation of further liberalisation.
“We do it as a means to establish our network in Taiwan with partners and regulators,” he said.
For a full feature on Taiwan's OBU liberalisation, see the forthcoming September issue of AsianInvestor magazine.