Thu, Jun 01, 2006 - Page 12 News List

Foreign investor interest in nation's banks set to soar

MERGERS AND ACQUISITIONS The nation's banks offer cost-effective investment targets for foreign firms as the number of options in neighboring countries diminish

By Amber Chung  /  STAFF REPORTER

Foreign investors' strong appetite for local financial institutions is expected to get even bigger in the future as they cash in on low-priced quality targets, analysts said.

While many of the nation's financial institutions are troubled by bad consumer debt, they still pose an opportunity for foreign investors to take a share of the nation's robust and lucrative banking sector, market watchers said.

"Foreign investors' interest in Taiwan's financial industry is on the rise," Greg Gibb, managing partners of McKinsey & Co, said at a seminar in Taipei last week.

He said that an increasing number of mergers and acquisitions between local financial players and their overseas rivals were expected, following a string of foreign investments over the past six months.

Rising Asian economies have in recent years seen rapid growth in both the consumer and corporate banking sectors, which has helped lure robust foreign investment in financial sectors in the region, according to McKinsey.

Taiwan has become one of the more popular investment targets after investors' enthusiasm for the finance sectors in neighboring countries, including China, India and South Korea, started fading along with the number of alluring picks available in those countries, Gibb said.

The scale of the local financial sector is estimated at up to US$743 billion, which is equivalent to the total value of the other financial markets in Southeast Asia, the consultancy said, citing central bank data.

Foreign banks and investors have been zealously pursuing local financial institutions since the beginning of the year. The latest case involved Shinsei Bank of Japan acquiring a 31.8 percent stake in Jih Sun Financial Holding Co (日盛金控), the nation's 12th-largest financial group by assets, for NT$11.34 billion (US$354.16 billion) early last month.

In March, Singapore-based Temasek Holdings Ltd bought a 15 percent stake in E.Sun Financial Holding Co (玉山金控) for US$400 million, following in the footsteps of US-based Newbridge Capital and Nomura Group of Japan, which spent a combined NT$31 billion for a stake of nearly 27 percent in Taishin Financial Holding Co (台新金控), Taiwan's No. 2 financial holding firm, in February.

In January, General Electric Co's consumer lending unit GE Consumer Finance acquired a 24.9 percent stake in Cosmos Bank (萬泰銀行), Taiwan's largest cash card issuer, for more than NT$9 billion as part of its plan to strengthen its foothold in Asia.

More deals are expected, with Far Eastern International Bank (遠東商銀) reportedly in talks with the British banking giant HSBC Ltd, and both Chinese Bank (中華商銀) and Ta Chong Bank (大眾銀行) rumored to be seeking foreign funds to help them weather the storm over bad loans.

"We expected to see active investments in local financial institutions by foreign private equity funds and multinational banks throughout this year," Gary Kuo (郭冠群), head of investment banking at Morgan Stanley Taiwan, said earlier this year.

The storm over default consumer loans provided a great opportunity for overseas investors to fish for quality targets at lower prices in pursuit of high returns as well as increasing manpower for expansion into the Greater China market, he said.

Yet robust foreign investment does not necessarily mean a brighter outlook for local financial institutions.

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