Mon, Nov 07, 2005 - Page 10 News List

Cross-strait opening key to banking sector

REGULATIONS Taiwanese banks are attractive partners for foreigners seeking to enter China's market, but this is offset by the limits they face in operating there

By Amber Chung  /  STAFF REPORTER

Taiwan's relatively small banking sector could be attractive to overseas investors if it can be further liberalized, as foreign banks are focused on snatching a piece of China's developing finance market, analysts said.

"Foreign banks' interest in investing in Taiwanese lenders depends on how much further the opening-up policy on the Chinese market will go," said Shirley Yang (楊慶祺), a fund manager who tracks Taiwan's finance sector and manages a NT$1.2 billion (US$35.65 million) portfolio at Invesco Taiwan Ltd, last week.

Taiwan is a mature finance market and given that the nation's professionals enjoy credibility in bank management, consumer banking know-how and advantages in language and culture, it is an attractive partner for international banks wishing to tap into China's fledgling retail banking business, where credit card penetration remains low, Yang said.

Taiwanese banks, which combine the merits of both US management knowledge and Japanese-style service, are well-positioned to be successful in the fast-growing economy on the other side of the Taiwan Strait, she said.

"But all of this will not materialize without liberalizing the bans on the Chinese market," the analyst said.

China currently only allows Taiwanese lenders to set up representative offices and bans them from conducting loan business.

Taiwan's financial authorities are considering allowing China's banks to open representative offices in Taiwan, which could prompt Chinese authorities to allow Taiwanese banks to upgrade their representative offices in China to branches.

Domestically, the government has vowed to create a minimum of one local bank run by foreign investors or listed on an overseas market as part of its plan to consolidate the banking sector.

But, no significant international investment deals have been reached since the failure in May of a global depository receipts (GDR) issuance by state-run Chang Hwa Commercial Bank (彰化銀行) of 1.4 billion shares. Interested bidders reportedly included Japan's Shinsei Bank Ltd and a consortium formed by US Lone Star Funds that included the Carlyle Group Ltd and Dutch ING Group NV.

"Foreign banks are buying China's financial institutions one after another, driven by the market's expected huge development potential," said Joseph Yeh (葉震宙), managing director of BNP Paribas Securities Taiwan Co.

Overseas investors remain interested in acquiring Taiwanese lenders, but have been driven away by the limited growth in a mature market, even though the amounts they may have paid for a non-controlling stake in Chinese banks may be sufficient to obtain management of local banks, Yeh said.

Foreign investors have been racing to purchase or collaborate with Chinese banks in order to strengthen their footholds in the fast-growing economy before the full opening-up of the country's finance market for foreign participation by the end of next year.

There have been several deals recently. The Industrial & Commercial Bank of China, China's biggest bank, announced last Friday that it had joined with Deutsche Bank to cooperate on investment banking services, while BNP Paribas last month said it would buy a 19.2 percent stake in the Nanjing City Commercial Bank for approximately US$87 million. Just few days prior to that, the Asian Development Bank announced it was investing US$75 million, or the equivalent of less than a 1 percent stake, in the Bank of China.

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