An extract from The Lending and Secured Finance Review, 7th Edition

Overview

Banks play a fundamental role as intermediaries in the financial market by taking deposits and providing lending to utilise the funds from the general public to finance valuable production and other investment activities. According to the statistics of the Financial Supervisory Commission (FSC), the banking industry regulator in Taiwan, as of January 2021, the total amount of loans provided by Taiwanese banks was approximately NT$33.17 trillion, an increase of 6.23 per cent from January 2020.The increase in the loan amount could have resulted from the covid-19 relief programme announced by the Ministry of Economic Affairs (MOEA) for Taiwanese enterprises and small businesses impacted by the covid-19 pandemic. As of 31 December 2020, the aggregate amount of guarantees approved by the MOEA under said programme was NT$321.719 billion and the loan amount was NT$384.47 billion. As to the Taiwanese syndicated loan market, due to the need for syndicated loans granted under the covid-19 relief programme, the government-owned or managed local banks dominated the local syndicated loan market. In 2020, Bank of Taiwan, MEGA International Commercial Bank, Taiwan Cooperative Bank, First Commercial Bank and CTBC Bank Co, Ltd are the top five banks providing syndicated loans in Taiwan. Except for CTBC Bank Co, Ltd, the other four are government-owned or managed local banks.

Legal and regulatory developments

Article 205 of the Civil Code used to provide that any portion of interest in excess of 20 per cent per annum is unenforceable. That is, the interest stipulated in a loan agreement or any other contractual arrangement was subject to a cap of 20 per cent. However, if the borrower voluntarily paid the interest exceeding that amount, the lender was entitled to receive this interest. Taiwan's Legislative Yuan passed an amendment to Article 205 of the Civil Code on 20 January 2021, pursuant to which the interest rate cap is lowered from 20 per cent to 16 per cent. This amendment will take effect from 20 July 2021.

Outlook and conclusions

In practice, the majority of renewable energy projects are financed through the syndicated loan market. With the Taiwanese government in full support of developing offshore wind power in Taiwan, it is foreseeable that the need for syndicated loans to finance the offshore wind power projects, either ongoing or planned, would be much stronger in the coming years.

To mitigate the impact of covid-19, the MOEA, among other competent authorities, issues a relief programme for Taiwanese borrowers meeting certain criteria to change the conditions of the existing loan or seek new loans with more flexible conditions from the banks. Those Taiwanese borrowers could seek financial support to ensure business operation in these difficult times. The relief programme also resulted in the growth of the total amount of loans provided by the government-owned or managed local banks.