House of the year, Taiwan: CTBC Bank

Asia Risk Awards 2020

Far from seeing the Covid-19 pandemic as a threat, CTBC Bank has worked hard to turn it into a business opportunity for product innovation, tweaking its expansive derivatives product set to meet the evolving needs of clients in its home market. Beyond that, the bank is also looking to bring its hedging solutions into the mainland China market.

“With the market being volatile this year, both clients and ourselves are paying more attention to risk management, which gave us an opportunity to further grow,” says Jack Wang, head of the global treasury sales division at CTBC.

CTBC has an 11% market share of the Taiwanese derivatives market, which the bank says is the largest share of any of the local banks. Throughout the years, it has developed its warehousing capabilities across various asset classes.

CTBC has closed some interesting deals. This year, it became the first Taiwanese bank to win a business opportunity from a large airline, providing them with a 10-year interest rate swap to hedge against the floating interest rate, combined with an interest floor. This allows the client to benefit from the downward interest rate trend, but also protects the bank from negative euro rates.

Jack Wang, CTBC

With the experience of developing derivatives products based in different market conditions, CTBC is looking to tap into China’s expanding market. In February 2020, its Shanghai branch was in the first batch of financial institutions permitted by CFETs to participate in swaptions trading in the interbank market.

“The licence is very important to us; we are able to provide swaption and cap-and-floor options linked to the loan prime rate against a fixed rate with this licence,” says Wang.

The loan prime rate – or LPR – has been around since 2013, but since last year the People’s Bank of China (PBoC) has been encouraging banks to use this rate as their benchmark for commercial lending. In order to help with this, the Chinese regulators rolled out interest rate options in February this year, swiftly followed by swaptions in March.

CTBC now operates in nine markets including China, Hong Kong, Singapore, Vietnam, India, the Philippines, Indonesia, Japan and the US. Singapore is the bank’s gateway into South-east Asia. “We hope to make better use of this licence with the combination of our multiple platforms,” says Wang.

We see most business opportunities coming from the leasing sector

Jack Wang, CTBC

The bank has already tested its cross-border supporting ability and been tiptoeing into the China market. It successfully helped one client to hedge its CNY bond issuance in China by tailoring a structured cross-currency swap, with terms matching bond coupons to lock up clients’ funding. Its Singapore branch co-ordinated with its trading desk in Hong Kong and dealing platform in Shanghai to win the deal.

“We hope that, with the easing of regulation in mainland China, we can gradually build up a debt capital market platform,” says Wang.

But they are taking it cautiously. “We don’t think the interbank market is liquid enough for pricing as well as risk management yet,” says Wang. He adds that it will take some time for customers to get used to the LPR, “before they will accept IRS for it”.

Most floating rate mortgage loans should now be on LPR. Major banks in the country had previously announced that, from August, any such loans not already on LPR would automatically be switched over.

“We see most business opportunities coming from the leasing sector,” says Wang.

Wang expects to see more cross-sale opportunities between renminbi lending and interest rate swaps, and says CTBC plans to offer new hedging services for the sector, including swaptions, caps and floor products.

CTBC is also a key participant in the offshore market for Taiwanese dollars, and continued to be able to provide hedging solutions to Taiwanese lifers, even in the fairly volatile markets that have been seen this year.

CTBC also extended electronic trading from interbank counterparties to corporate clients, especially those based in South-east Asia that seek to improve the level of automation. The bank has adopted 360T as its multi-asset platform for FX trading. With that, it is now able to provide price quotation to its Singapore clients electronically without too much manual involvement. CTBC says this helps the bank compete with its international peers in terms of FX flow in the region.

Going forward, Wang says the bank strives to embrace green finance and to generate solutions in supporting its clients. To achieve that, it is now working on renewable energy projects that cover commercial lending, financial advisory, interest rate and FX risk management, contingency hedging arrangements, transactional banking and supply chain finance.