Taiwan banks' exposure to China balloons, regulators warn of yuan risks

TAIPEI (REUTERS) - Taiwan's central bank said on Thursday that local banks had the equivalent of US$64.92 billion (S$82.18 billion) in exposure to Chinese loans, investments and interbank deposits as of end-December, leaving them more exposed to China than to any other country.

On a quarterly basis, the exposure increased 27.3 per cent in the fourth quarter from the third, the central bank said.

Earlier in the day, the Commercial Times newspaper reported that the island's financial regulators are checking seven banks to see if they properly advised clients about potential risks of currency investments after receiving complaints about losses related to the recent sharp fall in the Chinese yuan.

The Financial Supervisory Commission (FSC) had many complaints from investors about losses on yuan and other currency products, including from clients of banking units of Fubon Financial, Chinatrust Financial, Sinopac Financial and several others, the paper said, without citing sources.

FSC officials were not immediately available for comment.

In some countries where hungry investors have jumped into yuan-related investment products, regulators are also expressing concern about risks as Beijing boosts the currency's global reach.

On Wednesday, Reuters reported South Korean authorities were inspecting units of four foreign banks, reflecting Seoul's concern about risks posed by the rapid rise in exposure to China's markets and its currency.

Taiwan is seeking to play a key role in the internationalisation of the yuan as it moves toward becoming fully convertible, while Beijing has been keen to promote deeper economic integration with its one-time political foe.

Last Friday, Taiwan's central bank urged individual and corporate investors to be cautious of risks tied to the fall in the yuan.

It said local yuan deposits were about 250 billion yuan (S$51 billion) at the end of February, accounting for 21 per cent of total foreign currency deposits - up from 15 per cent at the end of January.

China's yuan plunged to a one-year low against the dollar on Thursday and was on track for a record weekly loss, with investors positioning for sustained weakness as the central bank's actions indicated it was comfortable with the downtrend.