China Development Financial Holding Corp (中華開發金控) aims to actively expand its assets under management (AUM) to help its flagship unit, China Development Industrial Bank (中華開發工銀), transform from an investment lender to a commercial bank, senior executives said yesterday.
Toward that end, the bank-centric financial service provider is raising investment trust funds in China and Taiwan in a bid to show the Financial Supervisory Commission (FSC) it has both the financial clout and the proficiency to develop into a commercial lender.
Its transformation plans stem from the sharp decline it has seen in demand for venture capital in recent years while liquidity excess is compounding its predicament, spokesman Eddy Chang (張立人) said.
“The macro-environment limits growth for financial conglomerates with heavy dependence on investment banking,” Chang said. “Gains on equity investments are also proving unreliable these days amid the global market turmoil.”
The company posted NT$587 million (US$19.62 million) in net profit last month on the back of improved core business. Cumulative net income totaled NT$4.02 billion in the first eight months, or earnings of NT$0.32 per share, company data showed.
The present business model leaves the company’s financial showings closely linked with bourses across the world, with investments on listed and emerging shares making up more than 30 percent of the portfolio, Chang said.
The group will go ahead and adjust its balance sheet — increasing the leverage ratio and contribution of recurring income to 80 percent from the less than 50 percent currently — in the hope the FSC would give favorable considerations later, he said.
The recent acquisition of KGI Securities Co (凱基證券), the second-largest in Taiwan by market share, would help boost recurring income with synergy benefits more evident next year, Chang said.
China Development Financial expects to gain substantial progress in raising trust funds worth NT$40 billion later this year or next which would allow it to have its leverage rates bumped up from their current level of 3.1 times its net worth. By comparison commercial banks have leverage rates of 10 times their net worth and life insurance companies at 20 or 30, he said.
“The low leverage figures make the group less vulnerable to systematic risks, but also constrain returns to equities at 2 percent (as of June), lower than most of our peers,” Chang said.
The group would consider acquiring existing banks in Taiwan, including Cosmos Bank (萬泰銀行), if the FSC approves its development plans.
“The company has not made any move thus far as it is not qualified to do so,” Chang said. “The fact that we own about a 6 percent stake in Cosmos Bank does not offer any advantage.”