Bankers laud Chen's consolidation plans

Several bankers yesterday lauded President Chen Shui-bian's (陳水扁) plans to consolidate the local banking sector, with special reference to state-run financial institutions, but questioned how the government plans to implement the proposal.

At a recent meeting with his top economics advisors, Chen said he hopes to reduce the number of state-run banks to six by the end of next year, while increasing the market share of three domestic banks to above 10 percent.

He also proposed halving the number of financial holding companies in 2006 while encouraging at least one domestic bank to list shares in an overseas stock market or to turn its management over to a foreign owner.

"Those will be very important milestones to achieve, but it's a question of how," Citigroup Global Markets Taiwan Ltd chairman Tu Ying-tzyong (杜英宗) said.

Tu said that the government should use market capitalization, instead of market share, to gauge the health of domestic banks. Market cap, which is derived by multiplying a com-pany's share price by its number of shares outstanding, is a quick way of putting a price tag on a company.

"The local financial market will still be overcrowded with seven financial holding companies if they are not turning a profit," Tu said.

The best approach would be to nurture at least two to three domestic financial-service companies to become regional players in the Asia-Pacific markets with a market cap of over US$20 billion, he said.

Despite the difficulties involved, four to five leading, innovative domestic banks should also be developed, while the nation's remaining financial institutions should be encouraged to transform themselves into niche banks, Tu said.

First Financial Holding Co (第一金控) executive vice president Huang Hsien-chuang (黃獻全) and SinoPac Holdings Co (建華金控) spokesman Kevin Peng (彭康雄) yesterday also welcomed Chen's proposed financial reforms.

However, Huang said that the government should encourage mer-gers to create synergy, rather than just halving the number of banks as a means of addressing the nation's over-banking plight.

He also expressed concern over the foreign-ownership proposal, citing a bad experience when First Financial was accused of inappropriately profiting foreign investors in its issuance of global depository receipts (GDRs) to attract foreign investors earlier this year.

"There should be concrete supporting measures to implement the government's consolidation goals," Huang said.

Peng suggested that the government come up with "carrot-and-stick" measures, such as tax breaks and branch licenses, to motivate the private sector to meet the government's goals.

The government will face great challenges in merging state-run banks, as it will be very painful for them to rationalize costs by laying off employees and shutting down redundant branches, he said.

Joseph Lyu (呂桔誠), chairman of the state-owned Bank of Taiwan (台銀) and one of Chen's economic advisors, said the government would start working out steps to implement the new financial goals.

Market forces will naturally edge non-performing banks out of the marketplace, allowing leading banks to compete with their regional competitors, Lyu said.