Academics slam mergers

The best way to resolve the nation's overbanking problem and boost the financial sector's overall competitive edge would be to build an "exit mechanism" to dispose of poorly performing businesses, rather than setting up a timetable to force the completion of banking mergers, academics said yesterday.

Chen Ming-shen (陳明賢), associate professor of finance at National Taiwan University, said the hotly discussed financial reform would hardly help improve the banking environment if it merely pushes forth mergers of some financial institutions into bigger players without downsizing the number of branches and employees.

When supply and demand remain unchanged, the reform would only have a limited effect, Chen told a press briefing held by the Taipei-based China Credit Information Service (CCIS, 中華徵信所).

One of the reform goals is to form three "national champions" with a market share of over 10 percent, so as to be able to compete with foreign players. But Chen said he feels no urgent need to accomplish this mission by the year-end, as Taiwanese banks do not have a controlling presence overseas.

"This [banking mergers] is like being granted the freedom to choose one's better half. No deadline should be set and a well-rounded mechanism should be established to help loss-making busin-esses exit the market," he said.

Chang Chien-yi (張建一), deputy director of Research Division II at the Taiwan Institute of Economic Research (台經院), echoed Chen's view, saying that service should be improved first because in terms of banking performances, "big" does not necessarily mean "good."

Citing a CCIS report released yesterday, Chang said Taishin Financial Holding Co (台新金控), Chinatrust Financial Holding Co (中信金控) and E.Sun Financial Holding Co (玉山金控) were the three most profitable financial service providers last year of the nation's 14 players. However, their asset sizes ranked a mere 8th, 6th and 10th, respectively, he said.

"Simply pursuing an enormous business scale is not the cure-all. Banks should also focus on developing distinctive products and obtaining a better understanding of customers' likes and dislikes," Chang said.

Academics yesterday also urged the government to open up the Chinese market for local financial players to expand operations and achieve internationalization, as around 70 percent of local banks are suffering dwindling returns.

Taiwan's 51 banks, for instance, earned over NT$110 billion (US$3.3 billion) in net profits last year, which compared to the semiconductor sector's NT$180 billion and the NT$230 billion of import-export businesses, said Chen Yen-pao (陳元保), professor of accounting at Soochow University.

He said that the government should allow banks to build up branches in China, to compete with foreign rivals who are buying stakes in Chinese banks.