Taiwanese bankers are looking to use standby letters of credit (L/Cs) to guarantee loans that Taiwan's state-owned banks extend to Chinese companies.

There are growing concerns over possible defaults by Chinese companies, which has already prompted Taiwan's ministry of finance to ask eight state-owned banks to provide details of outstanding loans to such enterprises.

Growing concerns

The ministry, which is the largest shareholder of Taiwan's state-owned banks, has asked them to provide details of the terms and conditions of the loans, including repayment schedules and collateral arrangements.

The move appears to have been prompted by concerns over two troubled privately owned Chinese companies, Ultrasonic and Golden Meditech.

Recent cases

Two Ultrasonic executives recently disappeared with loan proceeds from a US$60 million unsecured loan.

"A standby L/C or other security on loans for Chinese privately owned companies is a must for us in light of the Ultrasonic default," one Taiwanese banker told local media.

Taiwan's move to tighten up on lending to Chinese companies follows similar actions by Hong Kong in 2013 when it increased its scrutiny of banks based on the island as their exposure to mainland Chinese companies became apparent.

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