Last updated: April 3, 2013 2:56 am

China’s ICBC to buy Taiwan bank stake

ICBC©Bloomberg

China’s ICBC bank has announced plans to buy a 20 per cent stake in one of Taiwan’s biggest banks, the first significant proposed investment by a mainland buyer into a Taiwanese financial group.

Tuesday’s deal between ICBC and Bank SinoPac, valued at about NT$20bn ($670m), comes just one day after Taiwan said it would relax some restrictions on Chinese investment into its financial sector, a key part of the island’s push to boost its economy by encouraging more investment from the mainland.

Shares in Sinopac were up 4.9 per cent in Wednesday morning trading, while ICBC was up 0.5 per cent.

ICBC has been one of the Chinese banks most active in overseas dealmaking in recent years, taking stakes in banks from the US, Argentina and South Africa.

Taiwan’s struggling financial sector, in particular, is poised to benefit significantly from the recent thaw in relations between Taiwan and China, analysts say.

Last year, Taiwan was designated the second main renminbi clearing centre after Hong Kong. In February, banks on the island started taking yuan deposits and one bank, Chinatrust Commercial Bank, issued the island’s first renminbi-denominated bond, similar to Hong Kong’s “dim sum” bonds.

Bankers hope that the expansion of the Chinese currency to Taiwan will boost the profitability of a tough sector most analysts describe as overcrowded – there are more than 30 banks on an island of 23m people.

Yet Taiwanese politicians have been wary of opening up the door too widely to direct mainland investment out of concerns for the security of Taiwanese consumers’ personal credit information, said Jerry Yang, a banking analyst with Daiwa Capital Markets, in a research note.

The island’s banking regulators on Monday raised the cap on Chinese commercial banks’ investment to 20 per cent for certain types of Taiwanese banks. Previously, mainland investment had been capped at 5-10 per cent, depending on the type of lender.

A loosening of restrictions has also enabled Taiwanese banks to expand their branches on the mainland to reach many of the island’s companies that do business in China, which is Taiwan’s single largest trading partner.

The deal must still be approved by Taiwan’s regulators. The final value of ICBC’s stake will depend on what deal structure is permitted under Taiwan’s new investment limits, the bank said in a statement to the Hong Kong stock exchange.

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