Brokerages upbeat about financial firms doing Chinese yuan business

Taipei, Feb. 12 (CNA) Foreign brokerages have expressed optimism for the bottom lines of Taiwanese financial holding companies on expectations that these firms will benefit from Chinese yuan denominated transactions after the establishment of a cross strait currency clearing mechanism. Citibank Securities said Chinese-yuan dominated business conducted by domestic banking units (DBUs) of banks registered in Taiwan will provide local financial holding firms, which own the banks, with another important earnings source. The new business has kicked off since Feb. 6. In late August, Taiwan and China had signed a memorandum of understanding to set up a currency clearing mechanism across the Taiwan Strait, given their improving business ties. The move also paved the path for Chinese yuan transactions being allowed for local banks' DBUs. Before the cross strait currency clearing system was established, only banks' offshore banking units were allowed to conduct Chinese yuan transactions, such as making remittances and deposits, and extending loans. Bank of Taiwan's Shanghai branch has been appointed by Taiwanese financial authorities as the clearing bank for Taiwan dollar-denominated transactions in China, while Bank of China's Taipei branch has been named by Chinese authorities as the clearing bank for Chinese yuan denominated businesses in Taiwan. Under the currency clearing system, both sides will be allowed to freely conduct currency exchanges between the Chinese yuan and the Taiwan dollar, which will cut foreign exchange costs as traders will no longer have to first convert the currencies into U.S. dollars before exchanging them. Citibank Securities said the new financial business was expected to prepare Taiwan for becoming another Chinese yuan offshore trading center after Hong Kong, on the back of increasing cross strait financial exchanges. The brokerage issued a "buy" recommendation for six major Taiwanese financial holdings, which are Chinatrust Financial Holding Co., E. Sun Financial Holding Co., First Financial Holding Co., Mega Financial Holding Co., Taishin Financial Holding Co., and Yuanta Financial Holdings Co. Meanwhile, Goldman Sachs rated Chinatrust Financial, Taishin Financial and Yuanta Financial with a "buy," citing its optimism for the future of Chinese yuan transactions. Goldman Sachs was also upbeat about Fubon Financial Holding Co., which announced in late December that it will, along with its wholly owned subsidiary Taipei Fubon Commercial Bank, spend about NT$30.6 billion (US$1.03 billion) to acquire a 29 percent and 51 percent stake, respectively, in China-based First Sino Bank. In addition to the acquisition of the First Sino Bank, Fubon Financial owns a 19.99 stake in the Xiamen City Commercial Bank through its unit Fubon Bank (Hong Kong). Goldman Sachs said given its presence in China, Fubon Financial had gained the upper hand while competing with other Taiwanese counterparts in the huge financial market on the mainland. At the same time, Fubon Financial's latest move is expected to encourage other Taiwanese financial firms to speed up their pace of establishing a foothold in China. (By Tien Yu-pin and Frances Huang)