China Debt Scrutinized More by Taiwan Banks Eyeing Trade War

(Bloomberg) -- Taiwan’s banks, voracious lenders to Chinese companies in recent years, are starting to cool their appetite as they contemplate the longer-term consequences of the U.S.-China trade war.

Faced with low interest rates at home, Taiwanese lenders -- renowned for their clout in Asia’s syndicated loan market -- poured across into the mainland, so much so that the local regulator capped the amounts they could extend. Some have used up most of their quotas, Financial Supervisory Commission data show. On average, China made up 54 percent of the total book value of Taiwanese banks’ assets last quarter, up from 50 percent at start of 2017.

Below the surface, there are hints of a shift. The number of syndicated-loan deals for Chinese companies involving Taiwanese banks is set to drop this year for the first time since the 2015 China economic hard-landing scare, according to data compiled by Bloomberg.

“We have had more scrutiny and reviews on Chinese credits,” said Brian But, a Hong Kong-based senior vice president of corporate finance at Taipei Fubon Commercial Bank Co. Among the firms he says he’s cautious about are those with U.S. export business and leasing companies that could be exposed to exporters.

China’s economic growth has already slowed, before economists see the brunt of this year’s escalation in tariffs having an impact. The country has also seen a record 103 billion yuan ($15 billion) of defaults on local bonds this year, a consequence in part of moves by policy makers to clamp down on shadow financing.

It all means that despite attractive pricing, Taiwanese lenders are getting “more conservative” toward Chinese private-sector enterprises, But said.

China Debt Scrutinized More by Taiwan Banks Eyeing Trade War

Taiwan banks, flush with dollar deposits at home, punch above their weight in Asia. More banks from the island than any other location were in on syndicated-loan deals in the Asia Pacific region outside Japan this year, according to data compiled by Bloomberg.

A pullback in credit from Taiwanese banks would add to woes for Chinese companies that have struggled to secure financing in wake of the deleveraging crackdown. Some Taiwanese lenders are looking to Southeast Asia -- much like some manufacturers -- as the trade war threatens to reshape global supply chains. Taipei Fubon is among those seeing more opportunities in the region.

“We have started to see an obvious shift of Taiwanese borrowers looking for building or expanding their production capacity in Taiwan or Southeast Asian countries instead of mainland China -- especially in the manufacturing sector,” said James Lee, head of syndicated loans at Mega International Commercial Bank in Taipei.

©2018 Bloomberg L.P.