Financial regulators have imposed too many constraints which slow down the pace of the local banking sector's consolidation through mergers and acquisitions (M&As), the chairman of the nation's second-largest financial service provider said yesterday.
"The regulator should create a more favorable environment to accelerate the banking sector's consolidation," Fubon Financial Holding Co (
He said that the Financial Supervisory Commission's hesitation to ease restrictions on hostile takeovers was the major reason behind delays in consolidating the banking sector.
"The regulator encourages mergers more than acquisitions, which constrains the private sector's efforts to solve the over-banking problem," Tsai said.
The nation's banking sector is still crowded, with the number of banks only having been reduced to 50 from 52 before the M&A drive was launched, although 14 financial holding companies have been set up in the past two years.
A number of analysts believe that hostile takeovers can fuel the sector's M&A activities, although it could also backfire to negatively impact stock shares if managed carelessly.
Tsai said that the financial regulator's approach of promoting share-swapping rather than cash deals will lead to mergers over companies' capitalization, which is detrimental to their capital management and efficiency.
He added that the regulator has become the biggest hurdle preventing financial-service companies from undergoing mergers and acquisitions, since the regulator's approval is required prior to inking an M&A deal.
Tsai said the process of conducting an M&A deal is like steering a submarine which won't rise above the surface of the water until the deals are closed.
Having to apply for the regulator's approval before entering into an M&A deal exposes the intentions and strategies behind the merger, which may end up destroying the deal, he said.
Although Tsai lauded the government's goal of halving the number of financial holding companies by 2006, he said that a lack of incentives and preventive measures blemishes an otherwise perfect plan.
"The carrot isn't big enough and there isn't any stick," he said.
Instead, the government should organize open auctions to sell off state-owned banks as part of the government's goal of halving the number of state-owned banks by the end of this year, Tsai said.
"Open auctions are the most efficient and transparent way, and they are in line with international standards," he said.