Cathay United Bank now 5th-largest lending entity

The Cathay United Bank (國泰銀行) and World Chinese Commercial Bank (世華銀行) yesterday formally merged into a new entity under the roof of Cathay Financial Holdings (國泰金控), making it the nation's fifth largest lender in terms of net assets.

The new Cathay United Bank (國泰世華銀行) with NT$43.2 billion in capital and NT$888.3 billion in assets will serve 5.5 million customers through a total of 119 outlets nationwide, chairman Gregory Wang (汪國華) said at the launching ceremony.

Cathay United enjoys about 4 percent market share in Taiwan with outstanding loans of NT$527.9 billion, said Joseph Jao (饒世湛), chief senior executive vice president and spokesman of Cathay United.

Wang said he expected the bank's market share to surge to 10 percent in the near future.

The merger also thrusts Cathay United to become the third largest credit-card issuer here, with 2.9 million cardholders, next to Chinatrust Commercial Bank (中國信託) and Taishin Commercial Bank (台新銀行). Cathay United expects to boost the number to 4 million by next year, Jao said.

Cathay United is also targeting the Chinese market.

"We're looking for a partner in China to extend our business there at this point. We hope to announce a partnership by December," Jao said.

Cathay United applied to set up a liaison office in Shanghai in February last year and is expected to begin offering certain business including foreign currency exchanges in March, Jao said.

"We aim to become the best banking institution in the greater Chinese market," he said.

One market watcher is positive about the bank's domestic business growth, but said it will take at least five years for it to capitalize on the seemingly lucrative Chinese market.

"The sales capability of the merged bank will definitely be enhanced, but it still needs to work on reducing its bad-loan ratio, including assets under surveillance, which hovers at around 5.9 percent as of September," said Michael Lin (林建良), finance analyst with Capital Securities Corp (群益證券).

Although the massive Chinese market also provides a playground for banking institutions from all over the world, players should be extremely cautious when entering the market due to the poor financial infrastructure across the Taiwan Strait, Lin said.

"Cathay United wants to outflank other competitors by getting the first foothold," Lin said, "but there is no network established among various banks in China for banks to check loan applicants' credit. This is why the bad loan rates of Chinese banks are always as high as 20 percent, or even 30 percent," he said.

Forging a strategic alliance with Chinese counterparts is the correct starting point to avoid several operation restrictions that are applied to foreign companies by Chinese authorities there, Lin said.

Cathay Financial Holdings, the nation's largest holding company, acquired World Chinese Commercial in December last year and started to push for integration in personnel and various operation systems in June.

Cathay United reported a net profit of NT$7.4 billion for the first nine months of the year. It also pledged to cut the bad-loan ratio, currently at 2.26 percent excluding assets under surveillance, to under 2 percent after cleaning up NT$8 billion in bad loans since June.