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Taiwan seeking financial consolidation

Taiwan plans to make it easier for investors to acquire local banks, seeking to encourage consolidation in an economy where hundreds of lenders serve 23 million people.

The Financial Supervisory Commission has proposed allowing both foreign and local investors to fully own domestic banks, Vice Chairwoman Susan Chang (張秀蓮) said in an interview. Currently, only the government and financial holding companies may hold more than 25 percent of a bank.

Citigroup Inc, Standard Chartered Plc and ABN Amro Holding NV have taken over Taiwanese banks in the past year after competition, mismanagement and rising credit card defaults eroded profits among local firms. Taiwan has more than 40 local and 30 foreign banks, along with hundreds of grassroots lenders.

"This is quite a breakthrough which should accelerate consolidation," said Parker Wu, who helps manage the equivalent of US$150 million at Agricultural Bank of Taiwan (台灣農業金庫). "This will allow foreign investors to take majority stakes and do what they can on reforming Taiwanese banks."

An index of Taiwanese financial and insurance stocks has climbed 14 percent over the past two years, trailing the 40 percent increase in the benchmark TAIEX. The MSCI AC Asia Pacific Financials Index has risen 42 percent in the period.

The proposed draft needs approval by the Cabinet and the legislature, Chang said. Investors will be asked to seek permission from the regulator whenever their proposed ownership in a bank would exceed 10 percent, 25 percent or 50 percent, she said.

Under existing rules, investors that are not classified as financial holding companies can take control of distressed local banks, Chang said.

Revising the bank ownership law would "bring it into line with international standards," Chang said. "Such practice is expected to help facilitate the financial consolidation."
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