Local financial holding groups face increased competition from their multinational counterparts as the world's four major banking conglomerates have expanded their networks through acquisitions, market analysts said on Saturday.
The warning came after HSBC Holdings PLC (匯豐銀行), Europe's largest bank by market value, took over control of debt-laden The Chinese Bank (中華商銀) on Friday after the government agreed to pay NT$47.49 billion (US$1.46 billion) for HSBC to take it off its hands.
The HSBC deal was the latest in a series of forays by multinational banks into the local market. On June 8, ABN Amro Holding NV (荷蘭銀行) assumed control of Taitung Business Bank (台東企銀) while New York-based Citigroup Inc (花旗銀行), the nation's most profitable overseas bank, bought the Bank of Overseas Chinese (華僑銀行) for NT$14.1 billion in April. In September last year, London-based Standard Chartered PLC (渣打銀行) acquired Hsinchu International Bank (新竹商銀).
Market analysts said multinational banking groups had one eye on the Chinese market when making their acquisitions in Taiwan. Given that Taiwan and China share the same language and cultural background, multinational banks would be able to use the experience they obtain here and build on it when they enter the Chinese market, analysts said.
Moreover, the Taiwanese acquisitions offer easy access to the market for financial services for the large number of Taiwan-funded companies doing business in China and other Asian countries.
In addition, the analysts said, the local consumer banking and personal financial management markets are also showing steady growth. With a limited number of branches, multinational banks previously found it difficult to get a foothold in these emerging sectors.
Following the acquisitions, multinational banks are expanding their local service networks and the return of their investment would become evident in two to three years' time, the analysts said.
Local financial holding company executives say that the arrival of competition from overseas has posed a new threat to their market shares.
"If we fail to improve our service quality and design more innovative financial products, we could be overtaken by our multinational counterparts within three years," said a senior executive of a local financial holding company who preferred to remain anonymous.
The multinationals would offer attractive employment terms in order to lure outstanding financial managers away from local banks, posing yet another challenge to the local banks, the executive said.
In the face of this growing competition, the executive said local banks must step up their staff training, streamline their operations, improve their product design capabilities and seek merger and acquisition opportunities with local counterparts to expand their economies of scale. An ideal number of domestic branches of a financial holding group would be between 180 and 200, the executive said.
The deal reached between HSBC and the government-owned Central Deposit Insurance Corp (CDIC) on Friday means that HSBC will take over The Chinese Bank's assets, including its branches, its debts and at least half of the bank's employees, while Taiwan's Financial Reconstruction Fund will pay HSBC NT$47.49 billion.
The Chinese Bank was a subsidiary of the bankrupt Rebar Group (力霸集團). The CDIC assumed control of the bank after a run on its deposits early this year.
HSBC said in a statement on Friday that it plans to inject between US$300 million and US$400 million of fresh capital into The Chinese Bank.
"The Chinese Bank will provide HSBC in Taiwan with significant opportunities in retail, commercial and corporate banking," HSBC's Taiwan chief executive Alistair Currie said in the statement.
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