The state-controlled Taiwan Cooperative Bank (合庫銀行), the nation's second-largest lender, yesterday announced the takeover of smaller rival Farmers Bank of China (農民銀行), the nation's No. 14 lender, making Taiwan Cooperative the biggest bank by assets in Taiwan.
The merger will be conducted through a full share swap of one Taiwan Cooperative share in exchange for 2.45 Farmers Bank shares, which will take effect on May 1 next year, according to a joint statement released by the banks yesterday.
The takeover allows Taiwan Cooperative to replace the Bank of Taiwan (台灣銀行) as the nation's largest lender with assets of NT$2.57 trillion, or 10 percent market share, the bank said.
"Large state banks have little choice but to keep surviving ... they are better off merging with banks of a similar culture [to ensure sustainable development]," Taiwan Cooperative chairman Sean Chen (陳沖) told a press conference yesterday.
The government, which holds a 47.9 percent stake in Taiwan Cooperative and a 28 percent stake in Farmers Bank, will have a controlling holding of around 43 percent in the merged entity, according to the bank.
"The merger is just to fulfill our policy goals in time," said Karl Tseng (曾志峰), a fund manager who tracks the nation's finance sector and manages a portfolio worth NT$830 million at HSBC Investments (Taiwan) Ltd. The government has been pushing to consolidate the nation's crowded banking sector and aims to halve the number of state banks to six by the end of the year.
Taiwan Cooperative is expected to enjoy cross-selling benefits with an enhanced outlet scale after the merger, Chen said. The two banks' combined outlet numbers will rise to 296 nationwide, the statement said.
The banks' client lineups are very complementary with an es-timated low overlapping rate of 11 percent, and Taiwan Cooperative is planning to develop wealth management and consumer banking business after the takeover, Chen said.
He also said that the banks will not lay off any employees, as Taiwan Cooperative still has a demand for personnel after a batch of staff members retired after privatization last April.
However, the merger also sparked concern that Farmers Bank's high bad-loan ratio of 4.66 percent, equivalent to NT$21.5 billion, could have an effect on Taiwan Cooperative's profitability. The latter has been trying to lower its non-performing loan ratio to 2.5 percent by the year end from 3.38 percent as of September.
The merger could turn Taiwan Cooperative into non-profitable next year from an expected earnings of NT$2 per share, because of rising write-offs to resolve Farmers Bank's default loans, First Taisec Capital Management Inc (一銀投顧) said on Monday.
Taiwan Cooperative reported net profits of NT$1.59 billion for the first nine months of this year, while Farmers Bank posted a net loss of NT$514.1 million over the same period.
In response to the merger deal, Minister of Finance Lin Chuan (林全) yesterday said that the government will continue to push for banking reform by the year-end.
"The merger is good for both sides considering their business operations are complementary," Lin said.
Lin further praised management efforts over the past months to reach consensus on details, with labor unions expressing their satisfaction with the merger.
Asked whether the ministry is confident to halve the number of state-run banks to six by the year-end, Lin said he cannot guarantee results as there will be external, uncertain factors at play. But the government will do its best and push for mergers only when synergy is assured, he said.