FSC to hike capitalization requirements

Financial interested in transforming themselves into financial holding firms need to have a lot of capital, according to the preliminary new requirements announced by the Financial Supervisory Commission (FSC) yesterday.

Each financial institution would be required to have at least NT$50 billion (US$1.55 billion) in capitalization and up to NT$700 billion in assets in order to apply to establish a financial holding company, commission officials said at a press conference yesterday.

Those numbers are based on the average figures of the 14 current financial holding companies.

When licenses were granted to financial holding groups three to four years ago the requirements were NT$20 billion in capitalization and NT$300 billion in assets, an official said.

"The increase in the criteria was in part because we felt the original threshold was too low in light of the crowded financial sector," commission spokesperson Susan Chang (張秀蓮) said.

These figures, however, are preliminary criteria that will be discussed at the sustainable economic development conference to be held later this month, she said.

Based the the commission's most recent assets and capitalization figures (from March), five financial holding firms would not qualify under the new preliminary requirements, including E.Sun Financial Holding Co (玉山金控) and China Development Financial Holding Co (中華開發金控).

Chang the commission would not force undercapitalized financial groups to merge, but it does expect market mechanisms to lead the consolidation.

Meanwhile, the commission reiterated that it was moving ahead with plans to resume licensing bank branches, with no more than 10 branches a year to be approved, regardless of the number of branches closed in the meantime.

The relaxation would only applies to banks that are in good financial condition, have adequate capitalization, nice asset quality and good legal compliance, Chang said.

The opening-up -- which is also subject to discussion at the economic conference -- is expected to take effect next year, she said.

There are more than 3,000 bank outlets nationwide. Despite the overcrowded sector, banks have been urging the government to allow more branches to be licensed.

Fiona Uang (汪姵吟), an analyst who tracks the financial sector for Mega Securities Co (兆豐證券), applauded the proposed relaxation, saying it would have a positive impact on the fundamentals of the financial sector in the long run.

Taiwan Ratings has been urging the government to lift the ban on opening new bank branches. It has blamed the stalemate in consolidations to the freeze on branch licenses, because the restrictions led to increasingly expensive acquisition prices as buyers compete for the limited number of available, yet less ideal, targets.