The head of a major Taiwanese bank has been detained on suspicion of granting illegal loans, just months after another banking scandal rocked the island's financial sector. 

SinoPac Holdings chairman Ho Shou-chuan and two others are being probed over an alleged Tw$5 billion ($164.8 million) of loans made to an "offshore company with no real operations".

It is not yet clear what relationship they have with the firm that received the money. The case comes after the ex-chairman of Mega International Commercial Bank was indicted in December on charges including insider trading.

That followed a massive $180 million fine slapped on Mega by American authorities after they said they found "suspicious transactions" between its New York and Panama branches. 

Taipei District Court approved on Sunday a request by prosecutors to take Sinopac's Ho and the other two suspects into custody, saying there was a risk of evidence tampering or collusion. 

Local prosecutors investigating the case searched Ho's residence and office last week.  

"(Ho) and the others are suspected of jointly violating laws including the Securities and Exchange Act and breach of trust," prosecutors said. 

No formal charges have been made yet. 

The case revolves around alleged illegal lending to a company called J&R Trading Co. by a SinoPac subsidiary since 2009.

Local media said the funds were routed to finance an investment into a commercial building in Shanghai.

According to the court statement, Ho insisted at most he is accountable for "administrative negligence" and did not cause the company any damage.

SinoPac held an emergency board meeting Saturday and appointed an acting chairman following Ho's arrest.

The bank said it will cooperate with the investigation and that its operations are continuing as normal. 

Two other people critical in the probe have not been questioned yet as they are out of the country, the court said Sunday. 

Taiwan last year toughened its anti-money laundering laws following the Mega bank scandal. 

That case also led to the resignation of the island's top financial regulator, who was criticised over the handling of the fallout. 

Mega bank was found to have links with a Panamanian law firm at the centre of a huge data dump known as the Panama Papers scandal. 

The trove of leaked papers revealed murky offshore financial dealings that used shell companies to help politicians, celebrities and sports stars to skirt taxes.