In order to achieve its goals, the government is working on plans to merge state-run Taiwan Cooperative Bank (合庫銀行) with the Farmers Bank of China (農民銀行). It is also considering integrating the Bank of Taiwan (台灣銀行) with the Land Bank of Taiwan (土地銀行), and probably the Central Trust of China (中信局).
In a bid to encourage consolidation, the Financial Supervisory Commission said last week that larger lenders with more than a 10 percent market share will be allowed to open overseas branches without first getting regulatory approval.
Even so, Morgan Stanley lowered its rating on the financial sector to "underweight" from "equal weight" in its latest market report released on Friday, saying that deteriorating asset quality could undermine earnings next year.
"Despite the ... intention to cut the number of government-run banks by half before end-2005, we expect actual progress to be rather slow, as TBB was unsuccessful -- interference by the labor union was a roadblock to the acquisition," the report said. "At the same time, deteriorating consumer credit in cash card and credit-card loans could drive earnings downside risk to related banks in 2006."
Charles Yeh (葉銀華), professor at the Graduate Institute of Finance at Fu Jen Catholic University, said he was skeptical about the government's talk of seeking synergy and efficiency in promoting the reform.
"It was somehow paradoxical that the government was arguing that only privatization can revamp state banks, while on the other hand planning to merge state banks," Yeh said.
As the government has not outlined how it plans to strengthen professional management in the state banks and create synergies from the merger, it would seem that the merger itself was the ultimate goal of the reform, Yeh said.
If the government insisted on the deadline and its target number without considering the content, it would make the reform only something for the government to boast about during December's local government elections, instead of a milestone for Taiwan's banking sector, he said.
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