The deal would cost Fubon Bank (Hong Kong) Ltd., Fubon Financial's Hong Kong-based subsidiary, US$34 million, FSC Vice Minister Susan Chang said at a press conference the same day. "Fubon Financial is the first domestic bank to have been granted permission to take a stake in a Chinese bank through an offshore subsidiary. We gave the green light in the interest of raising Taiwanese banks' international competitiveness in the financial industry," she stated.
Chang noted that according to data provided by Fubon Financial, after becoming the XCCB's second-largest shareholder, the Hong Kong office was expected to secure two seats on the Chinese bank's 11-seat board, as well as the right to nominate its president.
Xiamen Municipal Bureau of Finance is currently the bank's biggest shareholder with a 24-percent stake and the right to nominate the bank's chairman. The XCCB has over 30 outlets that have total capital of US$35.7 million and last year had a net worth of US$61.4 million and a net income of US$11.9 million.
"We are delighted to hear the news," Fubon Financial President Victor Kung said after learning of the commission's approval. However, it is not suitable now for the company to reveal more details since both sides haven't officially signed any documents yet, he added.
The FSC approved Fubon Financial's application because the holding company's Hong Kong-based bank met new criteria allowing offshore subsidiaries of domestic banks to acquire shares in a Chinese bank, noted Chang. However, the plan still needed final approval from Taiwan's Investment Commission of the Ministry of Economic Affairs, she added.
As of 2007, Fubon Bank (Hong Kong) had US$7.78 billion in total assets and a Bank for International Settlements ratio of 14.42 percent. The bank had reported no major irregularities within the last three years and therefore conformed with the Regulations Governing Approvals of Banks to Engage in Financial Activities Between the Taiwan Area and the Mainland Area, according to Chang.
On March 12, the Executive Yuan approved the FSC's proposal to allow overseas subsidiaries of domestic financial holding companies and banks to invest in PRC banks, and to ease restrictions on the cross-strait financial business scope of Offshore Banking Units and overseas branches. In the future, overseas subsidiaries of domestic financial holding companies and banks will be allowed to take stakes up to 20 percent in China's banks, according to the FSC.
China's regulations dictate that any single foreign-capital institution can hold as much as 20 percent of shares in one of its banks, with the ceiling for the percentage of total foreign capital in the institution being 25 percent. In addition, China also regulated that any foreign institution holding shares in one of its banks should be worth at least US$10 billion in assets.
However, authorities in China lowered the threshold to US$6 billion for Hong Kong-based financial organizations based on closer economic partnership arrangements that exist between China and the former British colony implemented in 2004.
Taiwan and China have yet to agree on any cross-strait financial supervisory mechanism allowing banks' overseas subsidiaries to invest in China--an interim step designed to protect banks from risks abroad--while helping them serve customers who have investments in China, FSC officials explained.
Fubon Financial acquired a 75- percent stake from its Hong Kong unit's former shareholders, Arab Banking Corp. and China Everbright Holdings Co. Ltd. in April 2004. Formerly known as the International Bank of Asia, it adopted the name Fubon Bank (Hong Kong) Limited on April 6, 2005.
Write to Edwin Hsiao at edwinhsiao@mail.gio.gov.tw