In the second part of an interview, Morris Huang, senior executive vice president, head of retail banking at Taipei Fubon Bank, talks to SRP about the drivers of activity in Taiwan, the influence of the pricing environment and the popularity of leveraged and inverse (L&I) products.

Capital protection is among the main drivers of activity in the market for structured products in Taiwan, according to Huang. "The majority of wealth management customers in Taiwan consider asset preservation to be their priority and, therefore, they regard principal-protected notes (PPNs) attractive products for this purpose," said Huang. "According to their preference, comprehensive consulting services would be necessary for our customers to implement asset allocation."

The bank often recommends PPNs to investors with lower levels of assets and a preference for risk aversion, while its high net worth customers, with their higher risk tolerance, are recommended "diversified product portfolios, tailor-made according to their preference and experiences".

"We suffer from low interest rates, since the long-term rate curve goes flatter and the PPN profit declines," he said. "Our existing clients like asset-preserved products, and they have difficulty accepting contracts with lower coupons, even if they understand the reality of easing monetary policy."

The bank expects security market investors in Taiwan to prefer L&I products, since they have good experiences from margin trading, according to Huang. "Recently, we observed an increasing demand for leveraged structured products from security brokers, not only the amount of contracts but also the number of customers," he said. "For instance, some buyers favour a fund-linked product composed of 2x leverage option position on a low-risk return fund. They see the mutual fund as a stable trend and, therefore, believe steady profit gains from leveraged products," said Huang. "Their financing demand can be easily satisfied and tailor made through the purchase of structured solutions rather than other financing tools."

For retail investors, the bank combines all sorts of financial products with proper market consulting services, according to Huang. "We'd like to help our clients successfully manage their asset portfolio, instead of offering high product differentiation."

Additionally, the bank concentrates on uploading information to its service platform, such as financial news, market analysis and product information combined with its portfolio suggestions, according to Huang. "The service creates brand differentiation," said Huang.

According to SRP data, net sales of structured products in Taiwan were TWN256bn (US$8.5bn) year-to-date, up 42% from TWN147bn for the same period last year. In 2017, Fubon Bank was among the leading players for structured products with net sales of TWN16.5bn, up 13% year-on-year. The bank has issued 144 structured products this year. Other major distributors in Taiwan include DBS Bank (684 structured products worth TWN78bn), BNP Paribas (434 structured products worth TWN50bn) and ANZ Bank (142 structured products worth TWN18.5bn).

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