Taiwan’s lenders reduce China exposure

Taiwanese banks have scaled back their exposure to China to the lowest level in over a decade, due to tensions between the two countries. Data from Taiwan’s Financial Supervisory Commission has revealed that locally registered banks in Taiwan have reduced their lending, investments, and interbank transactions in China to NT$1.1tn ($34.6bn) as of March-end, an 18% decline from a year earlier. Investments have witnessed the steepest decline, down 28.3% over the past year. This marks eight consecutive quarters of declining exposure across the strait, reaching the lowest point since records began in 2013.

Banks are looking to diversify their exposure in terms of country and industry as they focus on risk management committees. Tong Chen-chang, deputy chief of Taiwan’s Financial Supervisory Commission’s Banking Bureau, said that Taiwanese banks are keen to diversify their exposure to the Chinese market, known locally as the “Go West” strategy. The COVID-19 pandemic may have also played a role in Taiwanese banks’ activities in China, with almost all travel links severed or severely restricted since the beginning of 2020.

Taiwanese banks’ expansion into the Chinese market has slowed down in recent years, with the most recent Taiwanese bank to expand in China being Shanghai Commercial Bank when it opened a new branch in Wuxi in 2018. Land Bank of Taiwan, Cathay United Bank Co. and Bank of Taiwan have previously been granted permission to open additional branches in China but have yet to do so. The Investment Commission in Taiwan stated that new investments in China by Taiwanese companies, mainly manufacturers, declined over 10% in Q1 2023.

Taiwanese banks’ caution in the Chinese market reflects other industries’ actions. Taiwanese companies’ new investments in China declined over 10% in Q1 2023, mainly due to tensions between the two countries. Conversely, total Taiwanese overseas investment, excluding China, grew 240% to $6.9bn in the same period, the government’s data showed, indicating that Taiwanese companies are seeking to diversify their investment portfolios in other countries.