There could be a resurgence of merger and acquisition activities in the nation's fragmented banking sector, as small lenders are being pressured by snowballing consumer bad debts, ABN AMRO Asia Ltd said.
"The consumer finance crisis could trigger more [merger and acquisition] activities," Vincent Chang (
Many banks and financial holding firms are trading at, or close to, trough valuations, which is appealing to potential acquirers, including foreign banks and overseas private equity funds, Chang said in the report.
Some small banks risk becoming insolvent as a result of the consumer credit crunch. As a result, these banks must look for external sources of capital, he added.
New branches
Also, the financial regulator's plan to lift the ban on new branch licenses would force smaller banks to rethink the unjustifiable high valuations they have sought, the report read.
ABN AMRO believes that recent landmark acquisition deals led by Taishin Financial Holding Co (
Taishin Financial obtained a 22.5 percent stake in state-controlled Chang Hwa Bank (彰化銀行) last July, becoming the nation's second biggest financial group by assets. It was in eighth place before the deal.
Chinatrust Financial began buying shares of bigger rival Mega Financial Holding Co (兆豐金控) in February. Chinatrust has reportedly acquired a 15 percent stake in state-controlled Mega and a successful hostile takeover bid would allow it to replace Cathay Financial as the nation's largest financial services provider.
Small, better-performing banks are likely to benefit most from this new round of consolidation because their value proposition is a good fit for local financial holding firms and foreign investors, Chang said in the report.
He said potential banks in play include Bank of Kaohsiung (
Attractive
These lenders tend to have relatively clean balance sheets, stable customer bases, more open-minded and capable management teams, and a meaningful branch and deposit franchise -- all of which are attractive to potential local and foreign buyers, Chang said in the report.
Far Eastern International remained noncommittal about its alleged partnership with HSBC Ltd, but Ta Chong's executives are reportedly willing to introduce foreign investment to strengthen their capital structure.
Fubon Financial holds a 5 percent stake and three board seats in Hsin Chu International, which boasts many leading high-tech companies in its client list.
The government's plan to dispose of its shares in Bank of Kaohsiung, however, will not be confirmed until after the year-end mayoral elections.
Despite the seemingly conducive environment, the ongoing policy uncertainty brought about by the proposals to enact a personal bankruptcy law and to lower the interest rate cap may be the greatest obstacles to further consolidation. This is especially true for foreign players, as the US and European chambers of commerce have expressed strong concerns and warned such regulatory issues may scare off foreign investors, Chang said.
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