A decision has finally been made for a third bank merger. Under the guidance of the Ministry of Finance, First Commercial Bank (
In recent years, the condition of the domestic banking industry has seriously deteriorated, with industry profitability and asset values declining sharply. Statistics compiled by the Central Bank of China (
In the face of the difficult predicament facing the financial sector, "merger" seems to the relevant government agencies like a panacea for the prevention of a potential financial crisis, and a way out of a dilemma for the banks. Prior to the lunar new year holiday, Taiwan Cooperative Bank (
The primary distinguishing characteristic of these two mergers is that, in both instances, "a big bank merged with (a) smaller one(s), and a good bank merged with (a) bad one(s)." In other words, big, healthy banks merged with small, floundering ones. This method may prevent unhealthy banks from triggering an all-round financial crisis, but it does nothing to help improve the competitiveness and soundness of operations of the entire banking system. Furthermore, if merger strategies are handled improperly, troubled banks may even drag healthy ones down and sow the seeds of more serious problems in the future.
In fact, only when the merging banking institutions supplement each other, and only when the merger reduces operational costs and improves efficiency, can these banks benefit each other to create the effect of "one plus one is more than two." The banks involved in the two recent mergers, however, had significant overlapping business. The merger did not result in any reductions in their personnel. It is hard to imagine how they can create such an effect.
The authorities and domestic banks habitually attribute the current business situation to the overpopulated financial industry, in which banks have to face cut-throat competition on prices. Although there is an objective basis for such a viewpoint, it also contains an extremely serious blind spot.
There are more than 50 banks in Taiwan. Even though no big banks play the role of price setter, this has not led to cut-throat competition. Take interest rate revenues -- the main revenues in the domestic banking industry -- for example. Before the finance ministry agreed on the establishment of new banks, the spread of interest rates between deposits and loans was roughly 3 percent. Now the spread stands at 2.9 percent, which is a small fluctuation.
An understanding of -- and solution to -- the predicament facing domestic banks will have to begin with the management concepts of the banking system. According to the analyses of McKinsey & Co, the working hours of domestic banking employees are 121 percent of those of their US counterparts, while their productivity, based on the number of transaction deals handled by each employee, is only 28 percent of that of the Americans. Domestic banks, that is to say, have long work hours, but low productivity. Such inefficiency could easily lead to a business crisis if the banks do not undertake proper credit management.
Outdated management concepts are the cause of inefficiency. Compared to those in developed countries, the operational procedures of many domestic banks still seem to be in the Stone Age. Only when we improve the management concepts and simplify the financial operations and transaction procedures can we raise the competitiveness of domestic banks.
If we do not address these problems but simply blindly promote bank mergers, we will only create "big but useless" financial monsters.
Huang Jyh-dean is an associate professor of National Taiwan University.
Translated by Jackie Lin
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