CTBC Financial Holding Co (中信金控), the nation’s third-largest publicly traded financial firm by market value, is in talks to buy shares in a Chinese bank as Taiwanese lenders seek profits outside their crowded home market.
“We may buy the stake in the target only or also let them buy a stake in us,” CTBC spokeswoman Rachael Kao (高麗雪) said by telephone yesterday, declining to name the lenders her firm is negotiating with. “We’ve been in touch and in discussion with some Chinese banks.”
CTBC Financial wants to increase the amount of pretax profit generated overseas to as much as 40 percent of total earnings in the next three years from about 20 percent now, Kao said.
The firm already runs the largest overseas banking network among its domestic rivals, with 68 outlets as of June, data from the Financial Supervisory Commission show.
Shares of CTBC Financial lost 0.3 percent to NT$19.70 on Thursday. The stock has climbed 25 percent this year, compared with the TAIEX’s 8.4 percent gain.
Net interest margins at Taiwan’s banks average 1.38 percent, the lowest rate of 16 territories after Japan’s 1.32 percent, data show. Banks in China, where deposit and lending rates are regulated by the government, have an average margin of 3.24 percent.
Eleven Taiwanese banks have established profitable branches in China as of August, data from the FSC show. CTBC Bank currently has a branch in Shanghai and a representative office in Beijing.
“Overseas operations are the key growth driver for Taiwanese banks,” Cathay spokesman Alan Lee (李偉正) said on Monday. “Taiwan is a small island with intense competition caused by overbanking. We need to target the larger markets in Southeast Asia and China.”
Cathay United Bank (國泰世華銀行), a unit of Cathay Financial, is seeking to boost its overseas pretax profit to 60 percent of the total in the next three to five years, Lee said. That compares with about 40 percent in the first half of this year.
The banking unit, the most profitable Taiwanese lender in China, plans to open a Chinese branch each year for three years, Lee said. Cathay United Bank reported NT$217 million of pretax profit from its Chinese branch in the first eight months of this year, FSC data show.
Fubon Financial Holding Co (富邦金控), the nation’s second-biggest publicly traded financial company by market value, said in December last year it will buy 80 percent of First Sino Bank (華一銀行), a joint venture between Chinese and Hong Kong owners, for 5.65 billion yuan (US$929 million).
Taiwan’s banks have followed their corporate customers to China as manufacturers took advantage of warming relations to tap into a cheaper labor pool there. As worker costs rise and those companies look beyond China to Southeast Asia, the lenders are following. Taiwan’s banks have almost half of their overseas outlets in ASEAN, where foreign direct investment from the nation grew fivefold last year.
“Taiwanese banks with strong US dollar funding have a competitive edge in expanding in Southeast Asia,” Hsu Chung (許忠維), a Taipei-based analyst at Credit Suisse Securities, said in a phone interview on Tuesday.
That may push the lenders’ overseas profits to a record this year. Their pretax income from abroad reached NT$54.6 billion as of August, compared with NT$74.4 billion, or 31 percent of the total, in all of last year, Financial Supervisory Commission data showed.
After riding out waves of bad debt on corporate credit in 2000, consumer lending in 2005 and international syndicated loans in 2008 and 2009, Taiwan’s banks are primed for international growth, Hsu said.
“Taiwanese banks have just recovered, and can now spare the time and the capital to focus on overseas expansion,” he said. “They can now focus on marching overseas in the next five to 10 years.”