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 (
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.
Beijing's Bank of China last month sold 1.6 percent of its shares for US$500 million to UBS. In August it sold a 10 percent stake to an alliance formed by the Royal Bank of Scotland, Merrill Lynch and the Li Ka Shing Foundation, for US$3.1 billion, as well as another 10 percent stake to Temasek Holdings for US$3.1 billion.
While China's banking reforms have made some progress over the past two years, Moody's Investor Serice said last week that Beijing needs to extend this beyond just initial public offerings.
"The state banks need to be transformed into competitive commercial entities which requires much more than just fixing the balance sheets through recapitalization and IPOs," the international ratings agency said in a statement.
In Taiwan, the government is moving to show its determination to continue with banking reform. Last week Premier Frank Hsieh (謝長廷) said the Cabinet plans to sell 20 percent to 30 percent of the government's holdings in the Bank of Taiwan (台灣銀行) to international banks.
"Since overseas investors have diverted their attention to China, local lenders may not be appealing enough to gain strategic investment if they remain stuck ... under restrictions [on expansion across the Taiwan Strait]," said Karl Tseng (曾志峰), a fund manager who manages funds worth NT$830 million at HSBC Investments (Taiwan) Ltd.
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