Driven to succeed
J.P. Morgan expects to see a continuation of the increase in lendable assets with Taiwan clients and anticipates more interest in this product, says Frank Niu
Taiwan is a mature market. Taiwan clients view lending as a great way to maximise alpha for their portfolios with minimal additional risks. With regulations relaxing on the percentage of overseas investments over the past 10 years, more and more assets are being allocated overseas. Over the same period, we have witnessed substantial lendable asset growth with our Taiwan client base.
Most requirements on lending in Taiwan are tax and regulatory driven. The regulatory guidelines provide sufficient flexibility on lending. In concert with our programme’s parameters, clients are able to maximise their lending opportunities within the current regulatory framework. This has allowed the Taiwan market to thrive in the past few years.
Domestic tax on lending is complex and the lack of double tax treaties between Taiwan and other countries complicates the tax-related configuration of Taiwan clients’ programmes. However, the lack of double tax treaties in Taiwan also creates opportunities for better yield enhancement and has meant that cash collateral is the dominant collateral option for Taiwan-domiciled clients. All things considered, these contribute to better lending returns for Taiwan lenders.
Taiwan lenders are performance-focused and savvy in achieving better lending revenues. They welcome ideas to enhance their programme and are generally willing to adjust their operational processes to realise these enhancements.
The reporting requirements from Taiwan clients are moderately complex. Their needs for better programme transparency and regulatory reporting have made the quality of reporting a critical success factor in this market. Programme analytics/commentaries, as well as performance benchmarking, are highly valued by Taiwan clients. Monthly programme data and some ad hoc reports are needed to ensure regulatory compliance. The requirement for some reports and documentation to be in Chinese means that local language support is highly regarded.
Over the past 10 years, J.P. Morgan has been running lending programmes that have met or exceeded the expectations of the initial group of Taiwan clients. These success stories are shared by our clients with their peers. This has generated significant interest in agent lending. Prospects are eager to understand the revenue potential of their portfolio and how they might mirror the success of their peers’ lending programmes. Although custody-based lending is still the norm in this market, we are also starting to see interest in non-custody lending.
In light of the current challenging investment environment, commercial sector clients have been increasing their asset allocation to high yield bonds in order to achieve better return on their portfolios. As high-yield bonds are a popular asset class in lending, clients are also realising good revenue by lending this asset class to borrowers.
Taiwan clients value J.P. Morgan’s ability to generate outstanding lending income and have seen continued substantial growth of their lending revenue.
Through years of partnership, Taiwan clients have a high degree of confidence in our risk management framework and control measures. They depend on our services to facilitate their programmes’ compliance. Indemnification supported by J.P. Morgan’s financial strength is another reason they choose J.P. Morgan as their primary service provider.
J.P. Morgan’s strong custody franchise in Taiwan and our ability to provide in-region, same-time zone, same-language lending coverage and support continue to be key differentiators to Taiwan clients that enjoy the benefits of end-to-end custody and lending services.
With the increasing interest in agent lending and the continued growth in lendable assets of clients, we have expanded the agent lending team based in Hong Kong over the past two years to support our clients in region. Additional professionals specialising in reporting and service joined the team to enhance client experience and overall satisfaction with the agent lending programme.
We expect to see a continuation of the increase in lendable assets with Taiwan clients and anticipate more prospects showing interest in this product. Given the December 2016 US Federal Reserve rate hike and those anticipated for 2017, US dollar investment yield will improve gradually. This yield improvement will benefit Taiwan clients whose lending revenue is substantially driven by return from cash collateral reinvestments.