Government task force to facilitate bank mergers

The government plans to form a mergers and acquisitions (M&A) task force, led by the chair of the nation's financial watchdog, to push forward President Chen Shui-bian's (陳水扁) plan to consolidate the local banking sector.

"The task force will recruit M&A experts from within the commission and organize consultations with several internationally renowned financial consulting companies within one month, before hammering out concrete measures in December in order to meet the president's financial goals," said Financial Supervisory Commission chairman Kong Jaw-sheng (龔照勝) at a press conference yesterday.

"Local banks need to get bigger in size or assets, in order to compete with their regional rivals in the Asia-Pacific markets," he said.

Although the banker-turned-official believes that the president's financial goals are attainable, he said that "the market mechanism, instead of government intervention, will be respected to accelerate the financial sector's consolidation through M&As."

After meeting with his economic advisors, the president on Wednesday, said he hopes to reduce the number of state-run banks from 12 to six by the end of next year, while increasing the market share of three domestic banks to above 10 percent each.

Chen also proposed halving the number of financial holding companies by 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.

According to Kong, the government will provide tax and business incentives to encourage mergers among the nation's financial institutions while playing an active role in facilitating the private sector's consolidation.

For example, the nation's financial holding companies will be allowed to relocate branches if the market share of their banking subsidiaries exceeds 10 percent. Otherwise, poorly performing banks will be encouraged to seek merger opportunities with other competitive financial institutions, according to Kong.

Citing a survey conducted by the Taiwan Academy of Banking and Finance (金融研訓院), Kong said that in a poll of 44 top managers from the nation's 14 financial holding companies, 93 percent expressed interest in conducting M&As to consolidate.

Previously, Kong had said that financial authorities have decided to halt the issuance of new branch licenses, meaning that financial institutions will have no way of expanding their number of branches in the future except through acquiring smaller rival banks.

He rejected a notion that the authorities will stop issuing new licenses to financial holding companies, however, saying that the seven strongest mega banks will remain in the marketplace, be they newly established or not.

Although the Ministry of Finance is the biggest shareholder in the 12 state-owned banks, the yet-to-be-established task force will also coordinate with the ministry to reduce the number of state-owned banks to six by next year, Kong said.

The government plans to develop up to three of the domestic financial institutions into regional players, while urging banks to take up over 10 percent of market share.

It is also welcoming foreign investors to take up controlling stakes in domestic banks or completely take over local banks.