Domestic banks should seek to boost their top line rather than bask in last year’s bottom-line improvement that stemmed chiefly from the recovery of bad loans, Citibank Taiwan said yesterday.
“With the non-performing loan ratio at record low levels, there is limited room for credit improvement to bolster earnings,” Citibank Taiwan chairman Victor Kuan (管國霖) said on the sidelines of a ceremony to launch smart banking services at four branches in Kaohsiung.
The banking sector’s total revenue dropped by between 6 percent and 7 percent last year from a year earlier despite robust growth in pretax earnings after the industry emerged further from the global financial crisis of 2008, Kuan said.
Citibank’s bad loan ratio stood at 0.41 percent at the end of February, lower than the average of the nation’s 37 lenders which hit a new low of 0.58 percent, Financial Supervisory Commission data showed.
Kuan, whose bank outperformed its peers in pretax profit in February and last year, attributed revenue growth constraints to an overcrowded and fragmented banking sector.
“Taipei tops the world in terms of banking density as measured by the number of banks against the population and geographic area,” he said.
There are more than 3,300 branches nationwide for a population of 23 million, a density that is approaching that of convenience stores, Kuan said, adding that cutthroat competition depresses interest rate spreads, as well as returns on assets and equity.
Citibank’s return on assets hovers at about 1.8 percent to 1.9 percent, while return on equity is approximately 17 percent to 20 percent, Kuan said.
“That performance is commonplace among international lenders, but outstanding for banks in Taiwan, again because of the competition,” he said. “The situation will improve only if there are fewer players in the market.”
However, consolidation remains a longshot, despite acquisitions of troubled local banks by their foreign counterparts in recent years, Kuan said.
Citibank acquired Bank of Overseas Chinese (華僑銀行) in 2007, enabling the US-headquartered lender to increase its number of branches to 65. It has more than 5,000 employees.
Kuan voiced support for the consolidation of state-run financial institutions, but added such a move may not necessarily generate the synergy benefits expected.
Citibank Taiwan is satisfied with its current scale and aims to strengthen profitability through differentiation and diversification strategies, Kuan said.
To that end, Citibank has introduced smart banking services at 24 branches and it eventually plans to equip all of its branches with the facilities.
“The investment has borne fruit, as evidenced by substantial increases in customers and transactions,” he said.
In addition, Citibank has extended its priority banking services in Kaohsiung as the special municipality may see better capital return facilitated by a more favorable taxation environment, said Gary Liu (劉熾原), senior vice president of retail banking.
Kaohsiung is home to 150,000 small and medium-sized enterprises (SMEs). Citibank has supported more than 8,000 SMEs and served 300,000 customers in southern Taiwan, Liu said.
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