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Tougher rules set for new financial holding entities

Establishing new financial holding companies will require meeting tighter requirements as the government aims to maintain healthy development in the financial sector, the Financial Supervisory Commission (FSC) said.

In an e-mailed statement issued on Tuesday night, the FSC said financial institutions would have to have NT$60 billion (US$1.82 billion) in capitalization and NT$750 billion in assets to be eligible to form new financial holdings.

The new threshold is higher than previous expectations of NT$50 billion in capitalization and NT$300 billion in assets, and higher from existing requirements of NT$20 billion in capitalization and NT$300 billion in assets.

The financial regulator set current requirements in 2001 when it started taking applications for financial holding companies.

The commission hopes the revised rules will boost momentum for industry consolidation and increase market competition after the creation of new and financially stronger holding firms places further pressure on existing ones, the statement said.

The commission did not say when it will implement the new rules. It posted the revisions on its Web site to seek public feedback over the next seven days, the statement said.

There are now 14 financial holding companies. The Financial Holding Company Act (金融控股公司法), which took effect in November 2001, allows banks, brokerages and insurers to combine under a new holding company.

The government has not issued new licenses for financial holding firms since 2001 because of concerns the market was saturated.

Based on the new rules, several existing financial holdings -- who do not meet one or both requirements -- are encouraged by the commission to "enhance operation scale and management synergy by their own or seek cooperation with others," the statement said.

Those who have capitalization of less than NT$60 billion are: E.Sun Financial Holding Co (玉山金控), Shin Kong Financial Holding Co (新光金控), Jih Sun Financial Holding Co (日盛金控), Waterland Financial Holding Co (國票金控) and Hua Nan Financial Holdings Co (華南金控).

China Development Financial Holding Co (中華開發金控), Yuanta Financial Holding Co (元大金控), Jih Sun Financial and Waterland Financial have assets amounting to less than NT$750 billion, FSC statistics showed.

Other new rules are planned as well. New financial holdings, for example, must have a capital adequacy ratio, known as the BIS ratio, that measures a bank's financial strength.

The financial holding company's insurance and securities subsidiaries must have a BIS ratio of more than 300 percent and 200 percent, respectively -- compared with the 200 percent and 150 percent set in previous requirements.

The FSC will be unlikely to give a green light to applications from new companies that use more than 50 percent of their shareholdings as collateral for loans.
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