Government might drop target on banking reform

Financial stocks were lackluster on the local bourse yesterday in the wake of a possible policy turnabout, as the government announced it could drop its target of halving the number of financial holding firms by the end of the year.

President Chen Shui-bian's (陳水扁) economic advisers said in October 2004 that the government wanted to cut in half the number of financial holding companies in a bid to pursue a quick consolidation of the nation's fragmented finance sector.

The finance sub-index was up marginally by 0.06 percent in comparison with the benchmark index, which advanced 0.76 percent on the Taiwan Stock Exchange yesterday.

The Cabinet yesterday confirmed that the government may fine tune its financial reform scheme, a move made in the face of mounting public concern that the government's plans may only benefit a few rich families as it hurries to dispose of state shareholdings, selling them at too low a price.

However, analysts did not seem surprised by the policy turnabout, saying that the decision was more realistic, as the former target had been impractical and unattainable.

"We remain neutral about the change," said Jonathan Lee (李信佳), senior director of financial institutions at Fitch Ratings Ltd's Taiwan Branch. "The numerical target was not necessary from the outset ? as it was not easy to achieve the goal while the majority of financial groups are privately owned."

What the government should have done was to make clear the rules of the game to facilitate consolidation under existing market mechanisms, Lee said.

Lee, however, expected the consolidation of the financial sector to slow, as the government may have second thoughts when it comes to disposal of its shareholdings in state-controlled financial holding firms.

Shirley Yang (楊慶祺), a fund manager who tracks the nation's financial sector and manages a NT$1.2 billion (US$37 million) portfolio at Invesco Taiwan Ltd (景順投信), said the market won't pay too much attention to the Cabinet's decision, as it is still overwhelmed by bad credit and cash-card loans.

The consumer loan issue is a bigger risk to the finance sector and stocks than any other, Yang said.

But consolidation will still occur this year, just not among financial groups as the authority had expected, as standalone banks like Ta Chong Bank (大眾銀行) and Entie Commercial Bank (安泰銀行) that are suffering from mounting consumer bad debt will have no choice but fall prey to their bigger rivals, she explained.

State-controlled financial holding firms yesterday stayed low-key about a policy change that could help lessen the chances of them being taken over by their private peers.

Joseph Shieh (謝劍平), spokesman for Mega Financial Holding Co (兆豐金控), the nation's third largest financial group by assets, said the company would comply with government policy, although consolidation is a trend that cannot be reversed as over-banking remains an issue in Taiwan.

To Chinatrust Financial Holding Co's (中信金控) chief strategy officer, Lin Shiaw-pin (林孝平), the number of financial holding firms will not contract for the foreseeable future, as most of the private companies had completed takeovers of smaller rivals and may not have enough resources left to acquire any more of their peers.

Chinatrust Financial, the nation's sixth-largest financial services provider, has reportedly bought a near 15-percent stake in Mega Financial and is looking to obtain up to four seats on the board of its bigger rival.