Mega Financial Holding Co (兆豐金控), the nation’s third-largest financial service provider by profits, expects earnings contributions from overseas operations to soften this year as the slowdown in China and volatile financial markets merit a shift in strategy, chairman Mckinney Tsai (蔡友才) said.
The banking-focused conglomerate is looking for markets other than China due to increasing competition from local and international rivals, making it necessary to tap different sources of income, Tsai said.
“We are looking for opportunities elsewhere and when we do, peers are bound to follow, closing the window again,” Tsai told a news conference last week.
Overseas and offshore banking units generated 52.29 percent of pre-tax revenues last year at Mega International Commercial Bank (兆豐國際商銀), which contributed more than 90 percent of the group’s income on the back of cross-border financing.
The contribution last year marked a retreat from 63.97 percent in 2014 and might drop further this year as China’s economy slows and drastic volatility in yuan weakens profit opportunities.
Mega bank’s exposure to China fell to 69 percent of its net worth at NT$150 billion last month, compared with the peak of 95 percent a few years ago, Tsai said, as arbitrage opportunities for the Chinese currency tapered off after the price differences between onshore and offshore markets dwindled.
Asian markets generated 60.86 percent of Mega Bank’s overseas earnings last year while North America accounted for 30.66 percent, company data showed.
The branches in New York and Sydney were highly profitable, but are now facing increasing competition from Taiwanese peers that are seeking to replicate Mega Bank’s business model, Tsai said.
“This ‘me too strategy’ might prove an easy solution in the short term, but might spell doom for sustainability in the end,” Tsai said, citing the spikes in applications by local banks to set up branches in Myanmar after authorities encouraged overseas expansions.
Mega Bank has opened a representative office in Yangon, the largest city in Myanmar.
The most profitable state-run conglomerate has put a hold on the efforts to develop into a regional champion until after the power transition is completed and new policymakers give the go-ahead, Tsai said.
Before that, all subsidiaries are to seek to improve core businesses and boost cross-selling and cost efficiency, Tsai said.
The conglomerate intends to maintain its leadership in international financing and beat the runner-up by 30 percent in terms of sales, he said.
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