Government officials' efforts last week to defend the controversial second-stage financial reform plan in a televised debate did not appear to pay off, with analysts saying that repeated arguments would not stimulate finance stocks.
"[During the debate] they just reiterated what they had said before. There was nothing new," said Shirley Yang (楊慶祺), who tracks Taiwan's finance sector at Invesco Taiwan Ltd (景順投信).
This would not boost ailing financial stocks, she said.
Vice Premier Wu Rong-i (吳榮義), who was commissioned to oversee reform in the banking sector led Council for Economic Planning and Development Chairman Hu Sheng-cheng (胡勝正) and Minister of Finance Lin Chuan (林全) to defend the necessity of the government's reform plan in a televised debate last Wednesday with Chinese Nationalist Party (KMT) legislators Lee Chi-chu (李紀珠), Lai Shyh-bao (賴士葆) and Fei Hung-tai (費鴻泰).
The officials said that a consolidation of the nation's crowded banking sector would improve economies of scale and sharpen competitiveness against big foreign banks such as Citibank and HSBC, and develop Taiwan as a financial hub in the Asian-Pacific region.
Opposition lawmakers, however, urged the government to stop intervening in the country's banking sector and allow the free-market mechanism to work.
"Investors have dropped any expectation on the drawn-out and disputed reform story, no matter how they explain it," said Wu Pei-wei (吳佩偉), a fund manager who oversees US$22 million of funds at ABN AMRO Asset Management in Taipei.
Nearly 20 percent of Wu's funds are invested in financial stocks.
Wu said that barring local banks from expanding across the Taiwan Strait has quashed an upturn in the sector. With bad loans in the retail banking sector likely to emerge next year, investors do not expect to see an upswing in the finance sector, he said.
Yang said the government has missed the best timing to get rid of its holdings in state banks.
"The government should have sold all of the state shares in a one-off auction at market prices in the first half of this year when financial stocks were still buoyant," said Yang, who manages over NT$1.2 billion in her portfolio.
Furthermore, she said that the government-dominated plan to shake up private financial holding firms interfered with the free- market mechanism.
"What really matters and would serve as a catalyst to the financial sector would be to allow them to go to China, which provides a big and fast-growing market," Yang said.
Last October, President Chen Shui-bian (陳水扁) announced a plan to consolidate the banking sector, including halving the number of state-run banks to six by the end of this year and cutting the number of financial holdings firms to seven by the end of next year.
The aim is also to create at least three large financial holding companies, each with a market share of more than 10 percent, and with at least of one of the financial holding firms being run by foreigners or listed on an overseas bourse.
In line with this policy, the government disposed of the Bank of Overseas Chinese (華僑銀行), Taiwan Development & Trust Corp (台開信託) and Chang Hwa Commercial Bank (彰化銀行) earlier this year.
The government suffered a setback, however, after the planned sale of shares of state-run Taiwan Business Bank (TBB, 台灣企銀) collapsed after the bank's union initiated a strike.
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