State-run Mega Financial Holding Co (兆豐金控) yesterday backed the consolidation of the banking sector, adding that it ranked second in terms of profits among its peers last year, despite modest earnings because excessive competition is constraining profitability.
Mega Financial chairman McKinney Tsai (蔡友才) made the comment after Taishin Financial Holding Co (台新金控) on Wednesday renewed its efforts to integrate its flagship subsidiary Taishin International Bank (台新銀行) with Chang Hwa Commercial Bank (彰化銀行).
Although Taishin Financial is the largest shareholder in Chang Hwa Bank and holds five of the nine seats on its board, Taishin Financial cannot manage the former state-run lender the way it wants. It bought a 22.5 percent stake in Chang Hwa Bank via a private placement deal in 2005 and later raised its holdings to 25 percent.
Seeking to end the limbo, Taishin Financial has pushed for Chang Hwa Bank to integrate with Taishin Bank, but the Ministry of Finance, Chang Hwa Bank’s second-largest shareholder, dismissed the proposal as “impractical and undesirable.”
“All parties involved are aware of the need to consolidate within the banking industry, but have difficulty carrying it out,” Tsai said without elaborating.
Mega Financial will seize on opportunities to grow its scale of economies, especially its banking arm, Mega International Commercial Bank (兆豐國際商銀), which accounts for 80 percent of the group’s earnings, Tsai said.
The group reported NT$21.51 billion (US$724.79 million) in net income last year with NT$1.88 earnings per share (EPS), making it the second-best performer after Fubon Financial Holding Co (富邦金控), with an EPS of NT$3.01, Tsai said.
However, the earnings pale in comparison with other sectors and reflect the difficulty of turning profits in the banking business, he said.
Mega Bank, whose profit jumped 28.8 percent last year to NT$19.33 billion, has a net worth of less than NT$200 billion, Tsai said.
He said NT$500 billion was an ideal level.
“Mega Financial is seeking opportunities overseas to increase the bank’s scale in the hope of shoring up its consumer banking business” since corporate lending has underpinned the lender’s earnings, Tsai said.
Mega Financial plans to strengthen its offshore and overseas operations after they generated 53 percent of profits last year, from 47 percent a year earlier, Tsai said, adding that the difficult operating environment at home contributed to the strategy.
The company expects Taiwan’s economy to stage a mild comeback this year despite the lingering uncertainty over European debt problems and the pace of recovery in the US and China, company spokeswoman Wei Meei-yeh (魏美玉) said.
It plans to trim holdings in government debt and increase corporate bonds as it pursues better returns, Wei said.