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Fitch Ratings urges concessions toward bank privatization

The government needs to make concessions on share pricing in the privatization of state banks to expedite the consolidation that is key to the banks' competitiveness, Fitch Ratings Ltd said yesterday.

"The government should make some compromises on prices of acquisition offers for state banks made with discounts to market prices ?it is critical," said Jonathan Lee (李信佳), director of financial institutions with Fitch Ratings Taiwan, at a press conference for the company's Global Banking Conference in Taipei.

If the government can take a longer-term and broader view, making concessions on certain deals can help speed up the whole consolidation process, which is actually beneficial to the financial sector in the long run, Lee said.

The government plans to halve the number of state banks to six by the end of this year, as part of its efforts to consolidate the fragmented banking sector. But Lee said the odds of achieving that goal are slim.

"We strongly doubt that the government could reach its goal by the scheduled time," Lee said.

"It is almost an impossible mission," he said.

The state-run Chang Hwa Commercial Bank (彰化銀行), the nation's sixth-largest lender, failed to attract enough foreign investors by issuing 1.4 billion new shares last month, due to the pricing.

The bank now plans to sell 1.4 billion shares to local financial institutions, such as Cathay Financial Holding Co (國泰金控), through either private buy-out or public issuance by the end of the year.

There are other structural problems hampering the government's effort to revamp the banking industry through privatization -- such as pressure from the Legislative Yuan and labor union resistance, said David Marshall, Fitch Ratings' managing director of Asian financial institutions.

"The slow pace of consolidation is a constraining factor to the country's ratings," Marshall said, adding that a less fragmented financial sector would lead to high ratings for Taiwan in the long run.

Having six major financial groups take up to 60 percent of market share, while 10 to 20 small banks focus on their niche markets, would be ideal, Lee said.
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