Industry consolidation in Taiwan, Asia’s fourth-largest retail
banking market, continues as the government announced its intention
to merge three publicly owned banks. The country’s financial
services sector continues to attract the attention of foreign
raiders.
The Financial Supervisory Commission (FSC) in Taipei has
proposed allowing foreign and local investors to fully own domestic
banks in a measure to spur consolidation in the island’s
over-banked financial services industry. At present, only the
government and financial holding companies may hold more than 25
percent of a Taiwanese bank.
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The proposed legislation needs approval by the cabinet and
parliament, commission officials stressed. Investors will be asked
to seek permission from the regulator whenever their proposed
ownership in a bank would exceed 10 percent, 25 percent or 50
percent, they said.
Under the existing rules, investors that are not classified as
financial holding companies can take control of local banks when
they are in a distressed state. Revising the bank ownership law
would bring it into line with international standards and help
facilitate financial consolidation, officials noted.
The Taipei government has also confirmed its determination to merge
three wholly state-owned banks into a holding company, despite a
move by the opposition in parliament to halt the project. The newly
merged bank, Taiwan Financial Holding Company, will combine the
Bank of Taiwan, the Land Bank of Taiwan and the Export-Import Bank
of the Republic of China.
According to the government, the new entity will emerge as the
country’s largest financial services group, with assets of more
than $150 billion. The government has set a 31 December deadline
for its Ministry of Finance to prepare plans for the merger, which
will be carried out in three phases.
Merger objections
The opposition had claimed that the government had not taken bank
staff’s rights and interests into account, while the absorption of
the Export-Import Bank into the new group will lead to disruption
of export financing for SMEs. A government spokesperson denied
these charges.
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By GlobalData“Since all three banks are 100 percent state-owned, their staff’s
rights and interests will be fully guaranteed after the banks are
transformed into a fully government-controlled financial holding
company,” he added.
The government’s main contention is that the new bank will achieve
economies and productivity gains to enable it to deepen its reach
into new markets. The initiative follows a period of consolidation
in Asia’s fourth-largest retail banking market, with its foreign
lenders and international private equity funds looking to grab
assets from an economy that is still trying to emerge from the
recent consumer credit crunch.
According to the FSC, Taiwan’s local banks wrote off $4.93 billion
worth of bad loans in 2006. A whopping 70 percent of this, or $3.49
billion, was made up of non-performing credit card loans. Much of
the rest ($1.44 billion) was made up of non-performing cash card
loans.
Taiwan has more than 40 local and 30 foreign banks as well as
hundreds of small lenders. Many banks, particularly smaller to
mid-sized players, still suffer from the unsecured loan crisis.
Local media reported on the 520,000 problem debtors (out of a
population of 23 million), whose bad debts averaged $9,300 per
person in the first half of 2006.
Banking clean-up
The FSC has also stepped up its efforts to clean up
the island’s banking sector. A number of local banks – including
Entie Commercial Bank, Cosmos Bank, Chinfon Commercial Bank, and
Asia Trust and Investment – were asked by the FSC in October to
propose capital increase plans due to the losses they have made. In
August, the FSC took over mid-sized lender Bowa Bank after its book
value turned negative.
A new bout of foreign investment in Taiwan’s banking sector
included the US private equity industry’s first involvement in
Taiwanese banking. Carlyle Group paid TWD21.5 billion ($657
million) for a 35 percent stake in small Taiwanese lender Ta Chong
Bank. Ta Chong had reported a TWD5.9 billion loss for 2006 after
writing off a major portion of its personal and credit card
loans.
UK bank Standard Chartered bought Hsinchu International Bank for
TWD40.5 billion in the first overseas takeover of a Taiwanese bank,
in September 2006. In 2007, Citi spent $427 million in a buyout of
Bank of Overseas Chinese in April, and in June ABN AMRO agreed to
take over failed Taitung Business Bank with a TWD6.9 billion
subsidy from the government.
Another strategic aim of foreign investors is to gain exposure to
mainland China, as foreign lenders bank on Taiwan and China
increasing their economic and trade links in future years.
Greenfield insurance
In September, HSBC announced plans to open a greenfield insurance
business in Taiwan’s highly competitive insurance market, where it
will compete with multinational players such as ING, Aviva and
Prudential, as well as the largest domestic insurer Cathay.
HSBC also plans to expand its local presence by employing 40 to 50
advisers in wealth management in Taiwan in the next 12 months. The
bank is recruiting bankers in Taiwan to reach a goal of managing 6
percent to 7 percent of the island’s TWD4 trillion private wealth
in three years, according to Sanjiv Sud, Taipei-based senior
vice-president for HSBC personal financial services.
“Our target is to exceed market growth rate in the mass affluent
segment,” Sud explained.
US insurance giant AIG has also announced ambitious plans to expand
its presence in Taiwan through the launch of a wealth management
business. In August, the insurer confirmed that it was aiming for a
10 percent private banking market share within five years,
targeting residents who have made big money in China.
AIG’s newly launched Taiwan wealth management business is due to
reach the break-even mark by the end of next year, said Peter Wild,
chief executive of AIG Private Bank.
Swiss group UBS has declared that it is aiming to increase its
share of Taiwan’s wealth management market to 10 percent by 2015
from about 1 percent now. That will equate to some $70 billion of
assets under management.
