Wed, Dec 08, 2004 - Page 10 News List

Financial watchdog plans for banking consolidation

FINANCIAL SERVICES The FSC has formed a draft strategy to reduce the number of players in the banking sector, and will finalize the plan in a meeting tomorrow

By Joyce Huang  /  STAFF REPORTER

The Financial Supervisory Commission (FSC) yesterday formulated a draft strategy to push forward President Chen Shui-bian's (陳水扁) plan to consolidate the banking sector.

"The commission will soon team up with the finance ministry in its capacity as shareholder to select one or two state-owned financial holding companies, which will be the catalyst for the creation of leading financial-service companies that will enjoy the status of `national champion' banks," Gary Tseng (曾國烈), head of the commission's banking bureau, told a press conference yesterday.

Commission vice chairman Lu Daung-yen (呂東英) said that the commission will finalize the draft strategy during its meeting tomorrow and will hammer out concrete measures to be carried out as early as next month.

Among the nation's 14 financial holding companies, the government still has a controlling stake in three -- First Financial Holding Co (第一金控), Mega Financial Holding Co (兆豐金控) and Hua Nan Financial Holdings Co (華南金控), which will be among the commission's targets.

Tseng further outlined a criteria to determine the status of so-called "national champion" banks.

The market share of "national champion" banks' total assets shall exceed 10 percent, with a return on equity between 15 percent and 20 percent and return on assets above 1 percent.

In addition, selected banks must have a capital adequacy ratio of over 10 percent, with a bad-loan ratio below 2.5 percent, a coverage ratio above 60 percent and a cost/net operating income ratio under 40 percent, Tseng said.

"This will be a very challenging task," Tseng added.

To create such leading financial institutions, Tseng said the commission would work on three possible merger models.

The models include mergers among state-owned financial holding companies that have been privatized, since they share similar business cultures, and mergers between state-owned financial holding companies that have been privatized and private financial holding companies. Lu heralded the latter as the preferred model since private players' management teams, which enjoy great competitiveness, could perfectly complement state-run players' sizable assets.

The commission will also encourage foreign investors to take up shares in the mergers, with Lu noting that some foreign investors have expressed interest in investing between US$2 billion and US$3 billion to buy shares of financial-service companies.

In response to the president's financial goals, the commission's mergers and acquisitions (M&As) task force has spent the past month consulting with several internationally renowned investment companies and domestic financial experts to complete the formulation of yesterday's strategies.

The president, in late October, vowed to increase the market share of three domestic banks to above 10 percent each, while halving the number of state-run banks from 12 to six by the end of next year and the number of financial holding companies from 14 to seven by 2006.

By 2006, the president also hopes to encourage at least one domestic bank to list shares overseas or turn its management over to a foreign owner.

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