Offshore financial operations see pre-tax profits fall over 14% as costs rise

Taipei, Sept. 16 (CNA) Offshore operations of the local financial sector reported a more than 14 percent fall in pre-tax profits from a year earlier in the first seven months of this year as high interests of the U.S. dollar boosted their costs, according to the Financial Supervisory Commission (FSC).

Data compiled by the FSC, the top financial regular in Taiwan, showed the combined profit before tax of offshore banking units (OBUs), offshore insurance units (OIUs) and offshore securities units (OSUs) totaled US$989 million in the first seven months of this year, down 14.5 percent from a year earlier.

The FSC said pre-tax profits posted by OBUs totaled NT$32.12 billion in the seven month period, down 12.6 percent from a year earlier, the data indicated. Based on an exchange rate used by Bank of Taiwan, the country's largest lender, at the end of July, the pre-tax profit of OBUs translated into US$976 million, down 16.5 percent from a year earlier, the FSC said.

Tung Cheng-chang (童政彰), deputy director-general of the FSC's Banking Bureau, said after an aggressive rate hike cycle by the U.S. Federal Reserve in 2023, interest levels in assets denominated in the greenback have stayed high, which pushed up costs of interbank lending shouldered by OBUs.

As of the end of July, the balance of deposits received by OBUs in the seven month period rose to NT$3.67 trillion, up 2.9 percent from a year earlier, and the balance of lending totaled about NT$2.40 trillion, up 7 percent from a year earlier with the average deposit to lending ratio at 65.3 percent, the FSC said.

High interest rates in the U.S. dollar cut both ways, however.

As a result, the highest interest income due to a rate hike cycle in the U.S. allowed OIUs to enjoy an increase in interest income, said Tsai Ho-yen (蔡火炎), deputy director-general of the FSC's Insurance Bureau.

In the first seven months of this year, pre-tax profits of OIUs totaled US$16 million, representing a 10.6 fold increase from a year earlier at a time when OIUs of life insurance companies, non-life insurance firms and re-insurers saw their profitability improving from a year earlier, the FSC said.

Tsai said the increase also came from a relatively low comparison base over the same period of last year when insurance companies had to pay massive compensation to insurance policyholders caused by climate change.

But the number of insurance contracts sold by OIUs in the first seven months of this year fell to 416, down 18.1 percent from a year earlier, the FSC said, adding premium income plunged 87.9 percent from a year earlier to US$3 million.

Tsai said the sharp drop in the number of new contracts and premium income reflected caution among OIUs which appeared reluctant to sign a large number of new contracts after paying huge compensation last year, while many of their clients terminated their contracts ahead of schedule or declined to renew their contracts.

As for OSUs, loss before tax totaled less than US$3 million in the seven month period, down almost US$10 million from a year earlier, the FSC said,

Kao Ching-ping (高晶萍), deputy director-general of the FSC's Securities and Futures Bureau, said the improvement showed many securities firms parked their funds in bonds commanding higher yields after their previous bond investments matured.