Taiwan to allow its banks to invest in China lenders

January 27, 2010

TAIPEI, Jan 27 (Reuters) – Taiwan has given preliminary approval for local banks to invest in Chinese lenders, but Chinese banks will not be allowed to buy stakes in Taiwanese counterparts, a government official said on Wednesday.

In revisions to a cross-strait banking draft as part of a historic financial services agreement signed with China in November, Chinese banks would only be allowed to set up representative offices and branches in Taiwan, the official said, requesting anonymity as he was not authorised to speak to media.

The draft, if finalised, would provide growth opportunities for Taiwan banks, whose return on equity has been among the lowest in Asia for years partly due to stiff competition.

“It opens up a significant new growth area for Taiwan banks,” said an analyst at a U.S.-based securities house, adding that he expected the draft to get final approval from Taiwan Premier Wu Den-yih as soon as July.

Trade ties between Taiwan and China have improved since China-friendly President Ma Yin-jeou took office in 2008, but distrust still lingers between the former political rivals.

The Financial Supervisory Commission, the island’s top financial regulator, said earlier this month that qualified Chinese domestic institutional investors will be allowed to buy local stocks worth up to $500 million, only half of what had been expected by investors.

However, cross-strait banking deals may be slowed due to political concerns, analysts said.

China’s ICBC <1398.HK> was in talks to buy a stake in Cathay Financial <2882.TW> in a potential $3.4 billion deal that would be the first direct investment by a Chinese bank into a Taiwan financial group, two sources with direct knowledge of the situation told Reuters in December.

ICBC’s chairman, however, had said he was not aware of the talks.

At noon trading, Taiwan’s financial shares rebounded 0.92 percent, beating the main index’s 0.34 percent rise. On Tuesday, the broader market posted its worst one-day fall in six months as concerns over China’s tightening liquidity spooked investors.

($1=T$32) (Reporting by Faith Hung and Rachel Lee; Editing by Lincoln Feast)

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