Bank of China Ltd (BOC) and Industrial & Commercial Bank of China Ltd (ICBC) are vying to be the first of the mainland's lenders to open branches in Taiwan after the two sides agreed to widen access to each other's financial industries.

BOC, the mainland's third-largest lender, said yesterday it would apply to open a branch. ICBC, the world's most profitable bank, needs a presence in Taiwan and wants to expand there, Chairman Jiang Jian-qing said on Nov 13.

The accord deepens financial ties with an island that has accounted for as much as $200 billion of investment in the mainland and has 100,000 companies operating there. It also paves the way for a broader economic agreement as relations between the two sides reach their warmest since a civil war ended 60 years ago.

"This is a big step on the political side and mainland banks are keen to show their support," said Li Qing, an analyst at CSC Securities HK Ltd. "The reality is the Taiwan market is too small and saturated for mainland players to care much about. It's more meaningful for the Taiwan counterparts who can expand in a much bigger market."

An agreement with the mainland may help Taiwan's drive to consolidate the island's 37 domestic banks. On Nov 12, the island's regulator issued draft rules to tighten requirements for branches of foreign banks.

Taiwan's benchmark Taiex index has gained 70 percent this year, set for the best annual performance since 1993. The index fell 0.76 percent to 7733 yesterday in Taipei.

Financial regulators from the mainland and Taiwan signed three memorandums of understanding on Monday to ease restrictions on investment in banks, brokerages and insurers across the Taiwan Strait.

China Construction Bank Corp, the mainland's second-biggest lender by market value, Bank of Communications Ltd and China Merchants Bank Co also said earlier they want to start operations in Taiwan once regulations allow such a step.

Relations between the two sides have improved since Taiwan leader Ma Ying-jeou took office in May 2008. Closer ties with the mainland, the island's biggest trading partner, may help Ma hasten a recovery in its export-dependent economy, which shrank 7.5 percent in the second quarter.

Seeking space

Bank of China, Bank of Communications and China Merchants are among lenders that have looked at space in Taiwan's landmark Taipei 101 building, Michael Liu, a spokesman for owner Taipei Financial Center Corp said last month.

Sean Chen, chairman of Taiwan's financial supervisory commission, and China Banking Regulatory Commission head Liu Mingkang signed agreements that cover cross-Strait financial supervision, information-sharing and risk management, the statements said.

There were three accords, one each for banks, brokerages and insurers, the regulators said.

The agreements will be effective within 60 days. The island and the mainland are scheduled to start talks on an Economic Cooperation Framework Agreement next month.

The accord may let banks set up branches in each other's markets, and Taiwan's lenders may upgrade representative offices in the mainland to full service branches, skipping the usual three-year wait, said Tseng Fan-jen, an analyst at KGI Securities.