The nation's increasingly competitive credit-card business may prompt some small-card issurers to team up for bigger market share, analysts said yesterday. But such a consolidation within the industry won't happen overnight, they added.
"Only banks that present economies of scale can survive in the market," said William Fong (方偉昌), an analyst at Primasia Securities Co. "For those who have less than 1 million cards here, they become the object to be merged."
As of September, there are around 36 million credit cards in circulation in Taiwan, according to statistics provided by Bureau of Monetary Affairs under the Ministry of Finance.
Chinatrust Commercial Bank (中國信託銀行) leads the sector with 5.4 million cards, followed by Taishin Bank (台新銀行) with 3.8 million cards, Cathay United Bank (國泰世華銀行) with 2.8 million cards, Union Bank of Taiwan (聯邦銀行) with 2.37 million cards, and Fubon Bank (富邦銀行) with 2.34 million cards.
"But I don't expect a instant wave of merger and acquisition (M&A) of Taiwan's credit card business to take place next year. It usually take years for parties involved to talk and negotiate," Fong said.
Fong made the remarks after the ministry finalized several amended regulations on card issuers' financial state -- which have triggered market speculations over the last two months about potential merger deals within the sector.
In October, the ministry amended the Regulations Governing Institutions Engaging In Credit Card Business (信用卡業務機構管理辦法), which requires local financial institutions to separate its credit-card business unit financially. That is, banks should have a separate financial sheet on its credit-card business from its other banking business.
The amended regulations also stipulate that banks should establish reserves to write off overdue debts of more than six months, and require institutions that have accumulated losses of more than one third of its paid-in capital to cease business if they fail to make up the deficits within a specified period.
But other industry veterans said that what matters to card issuers is not the number they issued but how much the spending on each card can create. Issuers may encounter losses if the spending per card cannot reach an average of NT$2,600.
"Issuers having over 1 million cards may still be merged if they cannot make profits from the cards issued," said Silvia Huang (黃昭熹), assistant vice president of The Shaihai Commercial & Savings Bank (上海商銀).
As the concentration ratio, or market share of the top 10 credit card issuers, accounted for 96 percent in Australia and 90 percent in Hong Kong, the 68 percent in Taiwan indicates that M&A is inevitable in the future for the market, analysts said.
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