It’s a world turned upside down. If banks were begging in 2008 to be bailed out, in 2020 many are asking what they can do to help.
That’s certainly the case with E.Sun Commercial Bank, one of Taiwan’s most outward looking private-sector lenders, with 28 branches in nine countries, including the US, Australia, Singapore and Myanmar.
“In times of stress and distress, financial institutions should leverage capital and resources, and use them to stabilize society by injecting liquidity into the market,” says E.Sun’s chief executive Joseph Huang. The industry should provide “assistance to companies in the greatest need,” he adds. “It’s time for banks to make a positive impact.”
Soon after Covid-19 emerged as a threat in January, the bank – and the island – went on alert. The SARS outbreak of 2003 killed dozens of people in Taiwan and it wasn’t going to get caught short again. The government ramped up screening efforts and directed industry to make millions of facemasks.
Change of tack
E.Sun switched tack too, and fast. “We followed the government’s orders and took precautionary measures straight after the outbreak,” says Huang. Branches were kept open – the chief executive says all services remain “uninterrupted” – while internally the bank focused on keeping staff healthy and rolling out its business continuity plan.
All business travel was halted from the end of Lunar New Year, which fell this year at the end of January. Every operating division was divided into two teams. Each was put to work in a different location and overseen by a centralized emergency response team that issued orders from a single control room in Taipei.
Every physical branch has two sets of staff: a frontline crew catering to the public and a full back-up crew ready to take over if the first team falls ill. IT staff were told to ensure employees working from home could operate remotely and securely. Starting in the last week of January, E.Sun told employees to wear facemasks, take their temperature daily and rein in travel. It gave 14 days’ paid leave to any worker who left and returned to the island in February.
We believe when the bad time is over, E.Sun will become stronger- Joseph Huang, E.Sun
E.Sun is also working to help its customers. “For SME clients suffering a loss of business, we offer payment extensions to those who have no going concerns issues or records of delinquency,” says Huang. Other aid measures include a six-month payment extension for corporate borrowers and a cut in mortgage rates of 0.5%, and in personal and card loan rates of 0.75%.
It is also working with the national SME Credit Guarantee Programme to fund firms in the greatest need. The government has pledged to disburse over NT$1 trillion ($33 billion) to individuals and corporates, focusing on transport, travel and tourism. The central bank will also channel NT$200 billion to small and medium-sized enterprises at super-low interest rates, with the loans guaranteed by state-backed SME funds.
E.Sun has also donated NT$15 million to the Centres for Disease Control (CDC), a health ministry agency that tackles the spread of communicable diseases. “Volunteering spirit is an important element of our culture,” says Huang, adding that it was vital to help the CDC “while they are fighting to save us all.”
Across the world, banks are under significant stress. Not the type many faced when, over-leveraged and under-capitalized, the global financial crisis struck, but one more complex and open-ended. Many face ethical and moral questions, as they strive to help customers stay afloat, while controlling risk and costs.
Taiwan is no exception. The 15 largest financial holding companies listed on the Taiwan stock exchange posted aggregate net profit of NT$350 billion in 2019, up 19% year on year, and an all-time high. (E.Sun, which hasn’t issued its audited numbers for the full year 2019, posted net income of NT$5.37 billion in the third quarter, a year-on-year rise of 39%.) Each will of course see its numbers deteriorate in 2020 and Huang reckons every bank faces three types of risk.
“The first is market risk – high equity and bond price volatility poses significant risk to financial institutions,” he says. “The second is interest rate risk. Central banks are cutting interest rates to very low or in some cases negative levels, which could make it more difficult for banks. The final one is credit risk facing many corporates, particularly SMEs. We hope to help them get through this difficult period.”
E.Sun has plans to mitigate each of these threats, he adds. It aims to temper market risk by only buying highly-rated bonds issued by global firms or financial institutions. And while “credit defaults are still few” in number, Huang is: “Keeping a careful watch on our corporate customers. It is too early to forecast the results and the specific impact should depend on when we control the virus.”
Taiwan’s sharp work with Covid-19 – spotting it early and acting decisively – has paid off. Despite lying off the coast of mainland China, it has fewer cases than most European nations – fewer indeed than the stricken Diamond Princess cruise ship.
Even in these dark times, with the West in lockdown and central banks turning on the stimulus taps, Huang remains hopeful about the future. He says the bank is “preparing for the worst case, even though it is one we don’t expect to happen” and adds: “We believe when the bad time is over, E.Sun will become stronger.”