The Taiwan Banker

Taiwan’s banking sector has evolved alongside the international expansion of Taiwanese businesses. After the Offshore Banking Act was passed in December 1983, and the Ministry of Finance promulgated its enforcement rules in April 1984, state-owned banks began establishing offshore banking units (OBUs) and overseas branches tasked with supporting Taiwan’s economic expansion while strengthening its international relationships through private sector engagement. From the 1990s onward, Taiwanese businesses started expanding into Guangdong and other coastal regions of China, but constrained by the “no haste, be patient” policy, introduced in 1996 to restrict investment in mainland China, banks could not follow their corporate clients into these markets. Even after 2000, business conducted through OBUs and Hong Kong branches remained closely tied to the triangular trade arrangements used by Taiwanese companies. After 2015, rising manufacturing costs in China, together with political unrest in Hong Kong, including the Umbrella Movement and the later protests against the extradition bill, prompted some foreign businesses in China to relocate. This shift stimulated wealth management business in financial centers such as Singapore, financing for Taiwanese enterprises in Vietnam and Cambodia, and supply chain financing in the US. These developments have shaped the current geographic distribution of overseas earnings among Taiwanese banks. Over the past two decades, Taiwanese businesses have undergone a fundamental transformation. Many have evolved from SMEs depending on low-cost labor into technology exporters and upstream suppliers serving multinational customers. Previously, Taiwanese businesses expanding overseas relied primarily on their own business capabilities, limited capital, and relationships with local governments. As they grew, they often depended more on local banks than on Taiwanese financial institutions. Today, however, the expansion of major Taiwanese corporations frequently comes first, creating opportunities for smaller suppliers to follow. Tax considerations and local sourcing requirements further encourage overseas investment. These represent fundamentally different models of SME internationalization. Taiwanese banks have also adapted their services as their corporate clients have expanded internationally. Initially, they provided financing to overseas affiliates of corporations headquartered in Taiwan through shared credit facilities. Later, their customer base expanded to Taiwanese-owned businesses headquartered entirely overseas, followed by foreign companies and individuals with business relationships with Taiwanese enterprises. This evolution has accompanied the development of OBUs, overseas branches, and overseas banking subsidiaries. As Taiwanese companies globalize, the main opportunities increasingly lie in serving overseas-based Taiwanese businesses and their foreign partners. Because these customers primarily transact with local companies, the key challenge for Taiwanese banks is to extend their services beyond their traditional client base. Taiwan’s growing emphasis on asset management could create further opportunities. Blockchain-based financial services may help connect overseas-based Taiwanese enterprises, foreign companies, and individuals that have traditionally maintained limited relationships with Taiwan’s banking sector. By leveraging the international operations of major Taiwanese corporations and banks, Taiwan’s financial institutions could build a broader global customer network. Three priorities deserve particular attention. l Financing for the Business Partners of Taiwanese Companies Large Taiwanese corporates generally have strong access to financing. They can use funds raised from financial institutions to extend credit to downstream suppliers, potentially generating additional profits. Over time, however, such arrangements may reduce their flexibility in corporate liquidity management. Partnerships between Taiwanese banks and major corporations offer an alternative. By providing financing directly to suppliers and other partners, banks could help Taiwanese enterprises expand their overseas networks while creating new lending opportunities. For Taiwanese banks, this would also support a gradual shift from large syndicated loans toward higher-margin supply chain financing and conventional commercial lending, but reaching foreign suppliers requires more than financing capacity. The government and related institutions may need to act as intermediaries so that banks can establish relationships with overseas supply chain participants. l Expanding Overseas Banking Subsidiaries The overseas expansion of major Taiwanese corporations also creates opportunities in retail banking. Employee payroll services, credit cards, mortgages, and consumer loans all represent potential sources of new business. At the same time, rising compliance costs have prompted many local banks to consider exiting certain markets or pursuing strategic partnerships. In the US, for example, the number of state-regulated community and regional banks has declined in recent years. This trend could create opportunities for Taiwanese banks to enter the market through acquisitions at reasonable valuations. Nevertheless, the potential business generated by Taiwanese corporate expansion may not be sufficient to support multiple Taiwanese banks operating in the same region. Developing viable banking operations in states such as Arizona, California, and Texas will therefore require closer cooperation with major Taiwanese corporations. Regulators and financial institutions should also explore potential models for collaboration. l On-Chain Financial Services Rapid advances in blockchain technology are transforming financial transactions. The tokenization of many real-world assets (RWAs) can allow ownership and transaction value to be transferred on-chain, but seamless settlement of tokenized assets requires compatible payment instruments, typically stablecoins or other digital currencies. Without suitable on-chain payment mechanisms, counterparties must rely on alternative settlement assets, limiting the efficiency gains of tokenization. From this perspective, trade finance could undergo a fundamental transformation. Documents and instruments representing ownership or financial claims, traditionally transferred in physical or electronic form, may increasingly be exchanged on the chain – making blockchain infrastructure an important component of future financial services. As Taiwan pursues its ambition to become an Asian asset management hub, asset custody will also be essential. A domestic framework for on-chain financial transactions, supported by strong regulatory oversight and the credibility of Taiwanese financial institutions, could help attract international market participants. Such an ecosystem could take Taiwan’s asset management industry to a new level, potentially establishing financial services as another strategic pillar of the economy, comparable to the semiconductor industry. Despite the opportunities arising from Taiwanese companies’ global expansion and changes in financial technology, talent remains the most important bottleneck in international banking. Banks need qualified professionals to execute their international strategies and develop new business models, yet Taiwan’s growing emphasis on semiconductors and AI may be drawing students away from business-related disciplines. Competition from neighboring financial centers offering higher salaries also poses challenges to talent recruitment and retention. These trends underscore the need for sustained investment in financial talent. A profitable financial sector can attract stronger talent, which in turn improves business performance and supports further growth. Establishing this virtuous cycle will be essential if Taiwanese banks are to play an effective role in the global expansion of Taiwanese enterprises. The well-being of overseas banking professionals also deserves greater attention. Long-term international assignments can strain family relationships and create challenges involving personal health and children’s education. Banks should consider improvements to existing health insurance arrangements, supplementary local commercial insurance, or dedicated financial support from headquarters. Such comprehensive support would allow overseas employees to focus on their responsibilities without compromising their health or family well-being. Ultimately, Taiwan’s international financial ambitions will depend not only on new opportunities and technological innovation, but also on its ability to attract, develop, and support the professionals who make long-term growth possible. The author is Deputy Editor-in-Chief of the Taiwan Banker.