In an effort to raise the competitiveness of Taiwan's banking sector, Minister of Finance Yen Ching-chang (顏慶章) said the administration would study the South Korean and Singapore models for the privatization of state-run banks, Chinese-language media said yesterday. Yen reportedly made the comments on Wednesday.
The suggestion to use a foreign model for bank privatization was made last week by Benny Hu (胡定吾), former president of China Development Industrial Bank (中華開發銀行) and a member of the Economic Development Advisory Conference (經發會).
"The Singapore government gave up its control of state-run banks by issuing preferred shares, which have no voting rights. When the preferred shares were sold to the private sector, they automatically became common shares, which include voting rights.
"Taiwan should consider similar ways to improve the operating efficiency of its state-owned banks," Hu said during a panel meeting last week.
Yen said Hu's idea had merit.
"In order to pursue the goal of financial reform and raise the competitiveness of Taiwan's banking sector, it's good [to learn from foreign professionals]," Yen said.
"For example, there was a state-run bank in Singapore that was totally under government control. Management power was turned over to American investors. A South Korean state-run bank also handed over management power to a foreign institution. Both cases resulted in a considerable improvement in operations that were once on the verge of bankruptcy. We could consider applying this experience to state-owned banks here," Yen said.
He said that before the new idea could be applied to Taiwan, a number of laws and regulations would need to be amended.
"There are still some technical issues that need to be resolved before management of state-run banks could be turned over to foreign institutions or the private sector. I hope a breakthrough on this issue could be attained during the Economic Development Advisory Conference," Yen said.
The conference is scheduled to run from Aug. 24 to 26. But pundits remain skeptical on whether the government will take bank privatization -- and the inclusion of foreigners -- seriously.
"Although Yen said that the administration would consider the proposal, I doubt the government would easily give up its control over state-run banks," said Norman Yin (殷乃平), a banking professor at National Chengchi University.
"Some state-run banks have been privatized since the early 1990s ... but about 50 percent of their shares are still controlled by the government. In another words, no real privatization has occured," Yin said.
Another pundit close to the DPP administration also questioned the validity of the idea.
"I don't think that South Korea's or Singapore's experience could be applied to Taiwan," said Lin Jong-hsiung (林鐘雄), chairman of the Taiwan Stock Exchange, who is also a member of the advisory conference.
"The South Koreans could hire some Americans to run their state-banks effectively because they could fire or lay-off state-owned bank employees, [but in Taiwan] the tenure of employees who work at governement banks is protected by law," Lin said.
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