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Prior to 4 June 2012, Taiwan financial institutions were allowed to accept foreign currencies or foreign securities as collateral when extending New Taiwan Dollar ("NTD") loans. However, pursuant to ruling issued by the Financial Supervisory Commission (FSC) in 2009 (Reference No.: Jin-Guan-Yin-Wai-Zi-No.09800177840), the "foreign securities" did not include the securities or certificates of time deposit issued by the central government of the People's Republic of China (PRC) or PRC financial institutions. To ease the restrictions on cross-strait financial dealings and enhance competitiveness of the Taiwan banking industry, the FSC issued a new ruling on 4 June 2012 to relax the above restrictions.
Under the new ruling, the definition of "foreign securities" covers the following PRC securities and therefore, from the date of the new ruling, Taiwan financial institutions are allowed to accept the following PRC securities as collateral for their NTD loans:
1.
Bonds issued by the PRC central government.
2.
Certificates of time deposit issued by a PRC bank, any of its local branches or any of its overseas branches, which is among the top 1000 banks worldwide by total assets or capital ranking and has a good credit reputation.
The new ruling also specifies that when accepting the above PRC securities as collateral for extension of NTD loans, Taiwan financial institutions should comply with the following guidelines:
●
Regarding risk-management mechanism for choosing and disposing of collateral, in addition to stipulating an internal operating policy, the Taiwan financial institutions should fix a ratio for using PRC certificates of time deposit as collateral for NTD loans.
●
Before Taiwan financial institutions are allowed to provide RMB-related services to Taiwan domestic clients, matters regarding Taiwan financial institutions acquiring the title to the collateral in the form of "bonds issued by the PRC central government" or "certificates of time deposit issued by a PRC financial institution and its branches" during the process of compulsory execution proceedings shall be handled by their offshore banking units (OBU) or their overseas branches located outside PRC. Also, the Taiwan financial institution shall calculate the total amount of its credit, investment and interbank loan and deposit in PRC in accordance with Article 12-1 of the "Regulations Governing the Banking Activities and the Investment by Financial Institutions between the Taiwan Area and the Mainland Area."
