Taiwan Financial marks first day as a merged entity

Marking its first day of business today, state-run Taiwan Financial Holding Co (台灣金控) -- the nation's largest financial service provider by assets -- faces challenges as it beefs up its international competitiveness, analysts said yesterday.

"Taiwan Financial's biggest strength lies in its government-guaranteed runs and its size, which make for a low risk of failure and garners it better credit ratings in the domestic market," said Edward Chow (周行一), dean of National Chengchi University's college of commerce.

But it may have a hard time competing in the international banking sector since it has a less developed network and lacks top-tier financial talents with expertise, Chow said.

Taiwan Financial, with NT$5.12 trillion (US$157 billion) in assets and 323 outlets, ranks as the world's 89th largest bank and the 18th largest in Asia, after the merger of the fully government-owned Bank of Taiwan (台灣銀行), Land Bank of Taiwan (士地銀行) and Export-Import Bank of the Republic of China (中國輸出入銀行).

But a total of 323 outlets hardly qualifies as a world player compared to other banks with thousands of outlets in the world, Chow said.

"[Taiwan Financial] has to overcome weakness commonly found in most government-run banks, such as the lack of professionals and upper-level expertise," Chow said.

"Recruitment of international professionals and expansion of global distribution will be the key for Taiwan Financial's future success if it plans to tap into the emerging corporate finance market and compete with other global rivals," he said.

Lin Chu-chia (林袓嘉), a professor of economics at National Chengchi University, shared similar views.

"Taiwan Financial's large assets will lead to lower operating risks, which helps attract clients. Also, its diversification of businesses and capital sources creates a lower capital risk," Lin said.

But Lin disapproved of subsidiary Bank of Taiwan's decision to spin off its insurance and securities arms under two to-be-established subsidiaries under the parent company.

The decision showed that the subsidiary Bank of Taiwan lacks expertise in these two financial segments, he said.

Local rating agencies, however, gave a thumbs-up to Taiwan Financial's establishment.

Taiwan Ratings Corporation (中華信評) has revised its outlook for subsidiary Land Bank from "stable" to "positive," reflecting "the bank's established franchise, good financial flexibility and government support due to its importance to the nation's financial system," the rating agency's press statement said earlier.

Taiwan Financial is expected to command 19 percent of the nation's deposits based on three subsidiary banks' financial measures as of September last year, the statement said.

Taiwan Rating expressed concern over the Land Bank's mediocre profitability and concentrated business profile, which is sensitive to the domestic real estate market environment. However, this would not immediately have any negative impact on its rating, Taiwan Ratings said.