Financially stricken Bowa Bank (寶華銀行) announced yesterday it would acquire debt-ridden Asia Trust (亞洲信託) via a share swap. But the proposed merger faces obstacles as the financial regulator said a well-planned capital support scheme would be a precondition for the approval of the deal.
"We will merge through a 100 percent share swap," Bowa's spokesman Shieh I-peng (謝一鵬) said in a telephone interview yesterday.
The swap ratio remains under negotiation and will be finalized at the next board meeting, Shieh said, declining to further elaborate on the timeframe.
Bowa will be the surviving entity.
The acquisition will allow the bank to expand its scale of operations and customer base as well as boost its number of outlets to 46 nationwide from the current 39, Shieh said.
However, the nation's financial regulator appeared concerned about the merger over worries about the financial condition of the two lenders.
"We have been aware of the deal for around two months," Financial Supervisory Commission spokesperson Susan Chang (
"A feasible fundraising support plan that will improve the financial condition is key to approval of the merger," Chang said.
The fundraising plan must bring in fresh capital from either original shareholders or interested investors, otherwise the deal will be rejected, said Gary Tseng (曾國烈), director general of the commission's Banking Bureau.
At the end of first half of this year, Bowa incurred net losses of NT$2.71 billion (US$82.4 million), bearing overdue loans of NT$10.25 billion and a bad loan ratio as high as 9.01 percent, according to the bureau's data.
Last year, Asia Trust generated net losses of NT$1.62 billion and incurred debts amounting to NT$30.38 billion, which accounted for 93.55 percent of its total assets, according to the company's annual report on its Web site.
According to the regulator, both lenders are on the list of problematic financial institutions that the financial restructuring fund needs to deal with.
The combination of both lenders' bad assets could be too big to be easily addressed, the commission said.
In response, Shieh said the bank had hammered out a plan to raise NT$4 billion in funding through a private placement and would include the plan along with the merger application.
Bowa had a capital adequacy ratio of just over 8 percent at the end of last year and expected the fundraising to bolster that level while it made acquisitions, he said.
"We hope to carry out the merger and capital restructuring at the same time and finish it as quickly as possible," the executive said without giving a timeframe.
Analysts, however, did not seem impressed with the deal, saying that the merger between two small-scale lenders gave the market little stimulation.
"But small financial institutions don't have many choices, either acquire or be acquired as their rivals become bigger through consolidation," Polaris-Protime Securities Consultants (寶來普泰投顧) analyst Peter Hsieh (謝杰良) said.