This study examines the performance of the financial system, which is related to the export sector, in Taiwan. First, the instruments and functions of loans and insurance are discussed. Next, a comparison is made between the different attitudes held by domestic and foreign financial institutions as illustrated when general credit and export credit are extended to various industries.
The major findings are summarized below:
1) Presently, the amounts and types of loans extended by domestic banks to export firms are subject to price and quantity constraints. Although increases in export levels will heighten loan demand and increases in deposits will augment loan supply, the actual ability of loan rates to influence export levels is insignificant. Loan quantities are determined by systematic factors instead. Since 1978, loans for export have been only approximately 20% of export value.
2) Bankers’ acceptances can provide short-term financing. These, however, have not caught the attention of the general public. The present ratio of bankers’ acceptances to export value is still less than 2%. To reduce current fund shortages, more attention should be given to bankers’ acceptances.
3) Roughly 80 or 90% of firms prefer letters of credit to documents of payment (D/P) or documents of acceptance (D/A), whose risks are higher. These latter, however, are helpful in opening potential markets. In this regard, the use of D/Ps and D/As should be encouraged, and the insurance guarantees offered by the Export-Import Bank of China should be strengthened at the same time.
4) Domestic banks extend general loans according to the product values of different industries, yet export loans are largely limited to the textile and food industries. Foreign banks behave differently. The general loans advanced by foreign banks are smaller than the domestic banks’ general loans, but, after 1980, the quantity of export loans advanced by foreign banks exceeded their domestic counterparts. The metal and chemical industries, which have higher product values, have an easier time obtaining loans for export from foreign banks. Moreover, the profit-capital ratio of foreign banks is higher than the domestic banks’ ratio. The performance of foreign banks should be studied seriously to see what lessons domestic banks may learn from the experiences and practices of the foreign banking sector.
