Government urged to speed financial sector reforms

The government should speed up financial reform this year if it wants to see benefits in the banking industry in the next few years, Sophia Cheng (程淑芬), director of Merrill Lynch Taiwan Ltd, said yesterday.

At a press conference held by the Chung-Hua Institution for Economic Research (中經院) yesterday, Cheng said that if the government starts reforms this year, it will have time to modify unsuitable policies and measures, and the effect of the reform will be shown in 2007, one year before the next presidential election.

"As the next presidential election is in 2008, this year is the best timing to undertake financial reform," Cheng said.

Activity stalled

The government said last October that it wanted to cut the number of state-run banks to six by the end of this year, while increasing the market share of three domestic banks to above 10 percent.

As no substantial M&A activity has emerged since then, banking sector shares are expected to face additional pressure, Sherry Lin (林淑娥), head of Taiwan research at Credit Suisse First Boston (CSFB), said last week.

An example is SinoPac Financial Holdings Co (建華金控), which is having difficulties choosing between Taishin Financial Holding Co (台新金控) or International Bank of Taipei (台北商銀) as a merger partner, due to internal disagreements between the company chairman and the board of directors.

Another similar case is the proposed merger of China Development Financial Holding Corp (中華開發金控), KGI Securities Corp (中信證券) and President Securities Corp (統一證券).

`Soap opera'

"The current progress [in merger deals] is like a soap opera," Cheng said, suggesting the government maintain a consistent policy on the M&A process to avoid dampening investor confidence.

As for financial stocks, which have recently being dragged down by negative news, Cheng said the sector's performance in the first half of the year will be fair. It is the next half of the year that investors' should be cautious about.

This is because of the inundation of cash-advance cards and non-collateral loans, which will result in increased non-performing loan levels among banks, Cheng said.