Thu, Nov 18, 2004 - Page 10 News List

Integration seen as worry for FHCs

FINANCIAL INDUSTRY A Taiwan Ratings report said holding companies will help drive consolidation in the sector, but problem assets remain a cause for concern

By Joyce Huang  /  STAFF REPORTER

In less than two years, the nation's 14 financial holding companies (FHCs) have emerged as dominant forces in the financial-service industry, although integration remains the biggest challenge to their ability to strengthen, a Taiwan Ratings Corp (中華信評) report said yesterday.

Taiwan Banking 2005 Outlook, written by analyst Chun Huang (黃俊榮), said the 14 FHCs account for 39 percent to 45 percent of domestic financial institutions' system-wide assets, net worth and profits as the end of last year.

Competitive pressures, regulatory changes and the prospect of synergies had propelled the rise of FHCs, which Taiwan Ratings said would help accelerate the pace of consolidation and resource rationalization in the years to come.

Five such industrial consolidations took place this year alone, including Taishin Financial Holdings Co's (台新金控) acquisition of Hsinchu Tenth Credit Cooperative (新竹十信) and Chinatrust Financial Holding Co's (中信金控) purchase of Fengshan Credit Cooperative (鳳山信合社) last month.

Shinkong Financial Holding Co's (新光金控) bought out United-Credit Commercial Bank (聯信銀行) while E.Sun Financial Holdings Co's (玉山金控) took over of Kaohsiung Business Bank (高雄企銀) in September.

"The ultimate goal is strength-ening their long-term competitiveness rather than improving short-term profitability," the report said.

Taiwan Ratings -- the local arm of Standard & Poor's said -- said that the write-off of problem assets has been a positive move for the banking industry, but remains a short-term fix.

Non-performing assets remain high and with the nation's 50 banks battling for market share, profits are likely to remain thin for some time to come, it said.

"Problem assets will be a recurring nightmare," Taiwan Ratings acting president Chris Irwin said in a statement.

Weak profits will make it hard for banks to write off new bad loans -- unless they fundamentally change the way they do business, he said.

Irwin said he expects competition among lenders to heat up next year when the Financial Restructuring Fund (金融重建基金) ceases to exist. By that time, banks will need to seriously address the levels of provisioning and risk management, both of which remain the sector's weakness, he said.

The fund will close in July next year, so the government will no longer provide a security blanket for banks.

As for other financial sectors, Irwin said negative spread remains a problem for life-insurers. Major players need to be innovative to survive while expanding their distribution channels, he said.

In the securities sector, which has witnessed intense competition and has already consolidated, more shakeouts are likely, he said.

Financial institutions may increasingly look abroad, especially to China for growth, but may only develop strategies to target Pacific Rim markets and follow their clients, since China is sure to make it hard for Taiwan to emerge as a regional financial center, he said.

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