Growth of Formosa bond market seen to help Taiwan banking system

From asset-liability mismatch in Renminbi.

Pressure may be alleviated on Taiwan’s banking system from an asset-liability mismatch in Renminbi through the growth of the Formosa bond market.

According to the report entitled "Offshore RMB – A guide to Formosa investments" from Standard Chartered, Taiwan’s Renminbi deposits, including those in overseas banking units (OBUs) and domestic banking units (DBUs) reached CNY 290bn by May 2014.

Standard Chartered also noted that it expects these to reach CNY 350bn by year-end.

Until Taiwan is able to establish more re-cycling channels and further deregulate the local Formosa bond market, Standard Chartered believes that the majority of its Renminbi deposits will continue to be channelled back to Bank of China (Taipei) via the local interbank market.

The report also noted that it is only when both domestic and international investors and issuers find it easy to tap the local Formosa bond market will it help Taiwan to reach its goal of maintaining and becoming a major offshore Renminbi centre in the longer term.

Formosa bonds are foreign currency-denominated bonds issued in Taiwan’s onshore market, Standard Chartered said.

It also said that the first Renminbi-denominated Formosa bond was issued by Chinatrust Commercial Bank in March 2013. So far, 18 Formosa bonds worth a total of CNY 14.1bn have been issued.