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 (
Cathay United Bank (
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 (
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 (
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 (
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.