The recent easing of regulations governing Chinese investments in Taiwanese financial institutions is not expected to generate meaningful improvements in local firms’ competitiveness and bottom lines, Standard & Poor’s (S&P) Ratings Services said yesterday.
In addition, a lengthy review by regulators or delayed execution of strategic cooperation could undermine the potential advantages of cross-strait business alliances, so as to cap the possible competitiveness improvement in the local banking sector, the international ratings agency said in a statement.
As a result, S&P said the deregulation could have a limited impact on Taiwanese banks’ ratings over the next one to two years.
The agency made the remarks two weeks after financial regulators on both sides of the Taiwan Strait reached an agreement on April 1 allowing higher shareholding ceilings for Chinese banks to invest in Taiwanese financial firms, as well as offering the opportunity for representatives of Chinese banks to sit on the boards of their Taiwanese counterparts.
The news came after SinoPac Financial Holdings Co (永豐金控) on April 2 announced it had entered into a private placement agreement with the Industrial and Commercial Bank of China (ICBC, 中國工商銀行) to allow the Chinese lender to acquire a 20 percent stake in the Taiwanese company or in its banking unit.
“While the [SinoPac-ICBC] agreement appears to be a milestone for cross-strait financial deregulation, we expect meaningful investments to remain largely subject to the regulators’ speed and scope of implementation,” S&P said.
“Moreover, it will take time for Taiwan banks to sync their business strategies with those of their Chinese partners and to realize the potential benefits of Chinese business development, particularly if the Chinese bank takes only a minority shareholding,” the ratings agency said in the statement.
The market has expected further transactions to follow the SinoPac-ICBC deal — which still requires regulatory approval from both Taiwan and China — but analysts said they do not expect that the deregulation alone would make Taiwanese banks more attractive to potential Chinese investors.
“Historically, Taiwanese financial holdings have not appeared to be the major beneficiary of cross-strait M&A [mergers and acquisitions] — either paying significant premium for acquiring Chinese banks or selling themselves at discount. We believe this relates to their difference in bargaining power versus their Chinese counterparts,” UBS Securities analyst Kelvin Chu (朱曉暐) said in a note on Monday last week.
While relaxed regulations would encourage strategic partnerships between Taiwanese and Chinese banks, Taiwanese regulators would still focus mainly on the local sector’s structural stability while reviewing potential transactions, another analyst said.
“For Chinese banks to invest in Taiwanese financial institutions, political motives will need to prevail over business motives. We think large, private-sector banks or bank-centric financial holdings are most likely targets,” Deutsche Bank financial analyst Pandora Lee (李懿璇) said in a report on April 5.