Ub News

(Reuters) – International banks such as Citigroup (C.N) and Royal Bank of Scotland (RBS.L) will see new competition in China as Taiwanese banks enter the market, leveraging their cultural ties and links to local firms.

The Taiwanese could quickly reap profits in their giant neighbor this year, helping underpin their battered shares over the coming months, and at the expense of bigger Western rivals which have troubles of their own at home. Taiwan banks should be able to tap the massive Chinese market in the second half of this year after Taipei and Beijing sign a historic cross-strait financial services agreement in May or June. The signing of a broader economic agreement further down the road could give them additional market access.

“Taiwan banks will certainly be a threat for us,” said Kenneth Cheng, a vice president of HSBC (0005.HK) (HSBA.L) in Taiwan. “If they can do business in the yuan soon, they will have an even bigger impact on foreign banks.”

Taiwan enjoys strong language and cultural ties with China and is home to Asia’s fourth-biggest banking market. Despite those advantages, its banks are years behind global giants such as HSBC and Citigroup, due to political obstacles that have so far kept Taiwanese banks out of China.

Leading Taiwan banks such as Cathay Financial (2882.TW), Fubon (2881.TW) and Chinatrust (2891.TW) were earlier expected to be at a disadvantage when they finally got the green light to enter the market nearly a decade after the global powerhouses.

But now, they are viewed as likely to rapidly narrow the gap as the global giants, reeling from billions of dollars in bad assets, focus on shoring up their positions at home and dilute their emphasis on developing markets like China.

In the last two months alone, RBS, Bank of America (BAC.N) and UBS (UBS.N) (UBSN.VX) have unloaded multi-billion dollar investments in Chinese banks to raise cash, losing strategic business partners in China in the process.

Read more: Reuters