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Financial regulator slams Heritage's report for bias

The Financial Supervisory Commission (FSC) yesterday defended the nation's financial freedom in the wake of a US report which criticized Taiwan for not opening up adequately to foreign banks.

The Washington-based Heritage Foundation released its annual poll of economic freedom on Wednesday, ranking Taiwan as the world's 37th-freest economy, down from 27th place in the previous survey.

The nation's banking and finance score was one point worse than the previous year, which resulted in an overall score 0.04 points down this year, as the market share held by foreign banks remained small in comparison with the government's still substantial role in the banking sector, the foundation said.

"Foreign banks actually occupy 50 percent of the market share in many financial segments, like in the derivatives market," FSC Chairman Kong Jaw-sheng (龔照勝) said in a question-and-answer session at the Legislative Yuan's Finance Committee yesterday.

Foreign banks also dominated half of the nation's asset management, securitization and wealth management sectors, according to the commission.

The minimal 3 percent market share the Heritage Foundation report referred to did not conform to the truth as it took only the deposits and loans into account, Kong said.

In rebuttal of the report, the commission said that the government has kept pushing privatization in the banking sector.

Therefore, the FSC claimed that it is not fair to evaluate a country's financial freedom based on the ratio of government holdings in banks alone; and that the poll should give additional consideration to Taiwan's continuous opening-up and improved market competition.

Neighboring countries struggle to match the level of liberalization for foreign bank businesses in Taiwan, including permission for overseas investors to wholly own local banks, granting foreign banks full license to conduct business and the relaxation on the amount of NT-dollar loans, the FSC added.

Meanwhile, in order to help sharpen competitiveness and facilitate consolidation of the banking sector, the commission is proposing to set up a competitiveness mechanism and will formally unveil it after the Lunar New Year holiday, Kong said.

The planned mechanism, originally slated to be finalized and announced at the end of last year, will initially be applied to financial holding firms, Kong said.

Under the FSC's consideration, the mechanism will include criteria such as quantified indices like return on assets and return on equity, credit ratings by international ratings services firms, evaluation of overseas operation performance, corporate governance, professional management and contributions to public welfare.
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