Offshore financial pre-tax profits fall

SECURITIES:
OIUs sold 18.1 percent less contracts this year, which reflected industry caution after paying out huge compensation last year, the Insurance Bureau said

Offshore operations of the local financial sector reported a more than 14 percent fall in pretax profits from a year earlier in the first seven months of the year, as high US dollar interest rates boosted their costs, the Financial Supervisory Commission (FSC) said last week.

The combined pretax profits of offshore banking units (OBUs), offshore insurance units (OIUs) and offshore securities units (OSUs) totaled US$989 million, down 14.5 percent from a year earlier, data compiled by the commission showed.

Pretax profits posted by OBUs totaled NT$32.12 billion (US$1 billion), down 12.6 percent from a year earlier, the commission said.

Photo: Kelson Wang, Taipei Times

After an aggressive rate hike cycle by the US Federal Reserve last year, interest levels in US dollar-denominated assets have stayed high, which pushed up costs of interbank lending shouldered by OBUs, Banking Bureau Deputy Director-General Phil Tung (童政彰) said.

In the first seven months, the balance of deposits received by OBUs 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 year-on-year with the average deposit-to-lending ratio at 65.3 percent, the commission said.

However, the highest interest income due to a rate hike cycle in the US allowed OIUs to increase their interest income, Insurance Bureau Deputy Director-General Tsai Huo-yen (蔡火炎) said.

The combined pretax profits of OIUs was 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 continue to improve, the commission said.

The increase also came from a relatively low comparison base last year as insurance companies had to pay massive compensation to insurance policyholders due to climate change, Tsai said.

However, the number of insurance contracts sold by OIUs in the first seven months fell 18.1 percent year-on-year to 416, with premium income plunging 87.9 percent to US$3 million, the commission 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, Tsai said.

Many OIU clients terminated their contracts ahead of schedule or declined to renew their contracts, Tsai said.

Combined pretax losses for OSUs were less than US$3 million, down almost US$10 million from a year earlier, the commission said.

The improvement showed many securities firms parked their funds in bonds commanding higher yields after their previous bond investments matured, Securities and Futures Bureau Deputy Director Kao Ching-ping (高晶萍) said.