Banks look overseas to sustain growth

With margins narrowing in the home market amid the drawn-out consumer bad debt issue, domestic banks have been expediting expansion abroad in the hope of sustaining business growth.

"We have been experiencing shrinking net interest margins as we reduce exposure to high-yield businesses [like credit cards], and are seeing increased capital costs from paying [higher] interest to depositors because of rate hikes," Cathay Financial Holding Co's (國泰金控) chief strategy officer Lee Chang-ken (李長庚) told investors last week.

Cathay United Bank (國泰世華銀行), the banking unit of the nation's largest financial group by assets, therefore hopes its overseas operations would help sustain profit growth.

The bank would continue to see higher profits from its overseas business -- which accounted for around 30 percent of earnings last year -- as profits from its local business have weakened because of soaring consumer bad debt, senior executive vice president Joseph Jao (饒世湛) said.

Cathay United said it was bullish about the market outlook in Vietnam, citing the country's rapid economic growth of more than 7 percent in recent years -- the second-highest in the region after China -- as well as a growing number of Taiwanese investors there, the executive said.

The lender opened a branch in Vietnam in Chu Lai, as well as two representative offices in Ho Chi Minh City and Hanoi last December. It also has a joint venture, Indovina Bank, which was formed with the Industrial and Commercial Bank of Vietnam in 2000.

Cathay United will continue to establish footholds in other countries and boost the performance of its overseas business units, Jao said without giving a timeframe.

Cathay United is not alone, as its local competitors are endeavoring to expand abroad as credit and cash-card bad loans eat away a big chunk of their profits.

Profits among the 45 local banks shrank to NT$29.3 billion (US$918.2 million) in the first quarter of this year, slumping 37 percent from the previous year, after as much as NT$192 billion in reserves were used to cover snowballing defaulted loans, according to the Banking Bureau's figures.

Chinatrust Commercial Bank (中國信託商銀) also announced last month it was part of a syndicated loan of US$50 million made to Videocon International, India's leading consumer electronics and home appliances maker, as a lead arranger, along with 10 other global lenders.

India, as a fast growing economy, is expected to see a corresponding rise in demand for capital, said Chinatrust Commercial, whose lending in the country has reached US$100 million.

Parent company Chinatrust Financial Holding Co (中信金控) reportedly hopes to double profits from overseas business to 30 percent of total earnings.

Chinatrust Commercial, which is the nation's largest credit card issuer, incurred a loss of NT$498 million in the first quarter of this year, down from profits of NT$5.09 billion during the same quarter a year earlier.

China, with annual economic growth of more than 10 percent, has been a dream market for domestic banks, but they cannot officially provide services to customers in the country due to cross-strait restrictions.

Taiwanese banks will lose out to Chinese rivals that have been deepening their relations with China-based Taiwanese companies, if they cannot start operations in China within the next two to three years, Credit Suisse (Hong Kong) Ltd's analyst Sherry Lin (林淑娥) said.