Taiwanese banks face liquidity crunch and regulatory scrutiny

Taiwanese financial regulators and banks are addressing significant operational and liquidity challenges. The Financial Supervisory Commission (FSC) has issued new directives following inspections of financial institutions. Key findings include banks improperly linking mortgage approvals to life insurance purchases or using lower interest rates to coerce clients into buying insurance. The FSC has mandated that banks must clearly inform customers of their right to choose insurance independently.

Additionally, the FSC identified gaps in anti-money laundering and fraud prevention, noting that some institutions failed to detect suspicious shell companies or monitor abnormal virtual account activities. Security concerns were also raised regarding vulnerabilities in financial apps and the use of insecure third-party libraries.

Separately, the banking sector is facing a liquidity crunch. The Liquidity Coverage Ratio (LCR) for domestic banks has dropped from an average above 130% to approximately 115% in late July. This decline is attributed to capital being drawn into the stock market and significant capital outflows caused by Taiwanese supply chains moving investments to the United States, notably following TSMC’s expansion efforts. Some banks have reportedly struggled to maintain the 100% LCR legal minimum, leading to aggressive competition for deposits and higher lending rates to manage cash flow.