Derivatives house of the year, Taiwan: CTBC Bank

Risk Asia Awards 2025

James Chiu, CTBC Bank

Managing the market and credit risk of a particularly large 10-year deal-contingent hedge in Taiwan is not an easy thing to do. It becomes even harder when local markets are being rocked by US president Donald Trump’s decision to impose tariffs on one of his country’s largest trading partners.

Since 2020, CTBC has taken on the role of joint financial adviser for many renewable companies seeking syndication loans for offshore wind projects. The bank has also offered hedge solutions for many of these loans.

Last year, CTBC became hedge arranger for one of these projects, on top of its role as financial adviser. This meant taking on “significant risks” arising from a 10-year deal-contingent hedge, which was executed as a Taiwanese dollar-denominated interest rate swap (IRS).

Not only was the transaction particularly large for the Taiwanese market (although CTBC declined to publicly disclose the exact size), but the contingent nature of the deal meant that the client could walk away from the hedge without any additional costs, had the syndication not reached financial close before an agreed-upon deadline.

“Project-based financing is very challenging for the Taiwanese banking industry,” says James Chiu, head of the bank’s treasury sales division. “This was a landmark transaction for us, not only because of the size of the deal, but also because of the structural challenges of the Taiwanese dollar IRS market.”

Chiu says that liquidity in the onshore IRS market can vary significantly, ranging from as low as NT$1 billion (US$32.9 million) on some days to 10 times that much on other days. This made it extremely difficult to manage the risk through the interbank market, he says.

Given the size of the deal, CTBC had to come up with an innovative way of managing these positions alongside the regular business flow, although the Taiwanese bank is coy about publicly disclosing too many of the risk management details.

“Executing a long-dated hedge of this scale and complexity required a thoughtful and multi-pronged approach. We had to combine effective market execution with a capital market solution,” says Chiu.

Such a “capital market solution” employs various tools, including a range of investment channels, to ease the burden on the swap market. CTBC declined to publicly disclose further details.

Global facing

The other way in which the Taiwanese house punches above its weight is through its ever-growing presence on the Asia-Pacific stage.

Last year, CTBC became the first Taiwanese bank to be allowed to trade fixed coupon notes (FCNs), a type of equity-linked structure, on the Taiwanese market. This year, CTBC launched a structured note-issuing programme in Hong Kong, specifically to serve its clients back home.

“Previously, we were only able to print structured notes onshore in Taiwan, which have a 10% withholding tax requirement on any interest rate payments. Offshore notes, on the other hand, are treated as an overseas investment with much more favourable conditions,” explains Chiu.

CTBC remains strong in Japan, too, leveraging off its Japanese franchise to deliver meaningful solutions to clients this year.

One Taiwanese wind farm operator required fixed-rate borrowing to purchase equipment from a Japanese manufacturer during the construction phase of its project. The funding was raised in Taiwan in a syndicated loan format, presenting both a liquidity and pricing challenge when it came to converting this to yen.

“To manage this exposure, we structured a customised six- to-nine-year Taiwanese dollar solution, using non-deliverable forwards tailored to the client’s particular cashflow schedule. This allowed the client to lock in the yen rate at a level they were happy with throughout the construction phase,” says Chiu.

In China, CTBC has been named as one of 20 trial market-makers for renminbi FX forwards and swaps.

“Being part of this group is strong recognition of our capability and credibility within China’s interbank market,” says Chiu.

Finally, CTBC continues to expand the use of its in-house treasury management system, which this year was launched in its Thai operations. The successful implementation of the system in Thailand means that Vietnam and Indonesia are now the only two countries in which CTBC operates that are not currently using the system.

“Our in-house treasury system enables real-time risk management and supports local market practices, significantly enhancing pricing and execution,” says Chiu. “Introducing the platform into new markets is complex because we have to comply with local practices and maintain onshore data capabilities.”

Chiu says that efforts have been worth it, with the bank seeing a doubling of FX transaction volumes in Thailand as a result of deploying the new in-house system in the country.

“CTBC has long been the most active derivatives house in Taiwan, but, frankly speaking, we have never been comfortable with just holding that position,” says Chiu. “We are driven by a clear ambition. We want to become Asia’s leading Ficc [fixed income, currencies and commodities] house. It is this goal that sets us apart from our domestic peers.”