Mon, Nov 21, 2005 - Page 8 News List

Editorial: Steadfast steps in financial reform

Last week, the government announced the merger of the Bank of Taiwan with the smaller Central Trust of China, creating the first lender with a market share of more than 10 percent. Though of somewhat token value, this latest merger has helped the government advance reforms that aim to halve the number of state-controlled financial institutions to six by year's end.

The merger will give the Bank of Taiwan, the surviving entity, a market share of 11.59 percent with combined assets of about NT$3 trillion (US$90 billion). The announcement came 10 days after the Taiwan Cooperative Bank said on Nov. 8 that it would incorporate the Farmers Bank of China to create a bank with combined assets of NT$2.57 trillion.

The government needs only to dispose of one more state-controlled bank -- First Financial Holding Co, Hua Nan Financial Holding Corp, Mega Financial Holdings Co, Land Bank of Taiwan or Taiwan Business Bank -- by year's end to fulfill its policy goals in time.

The Bank of Taiwan has claimed that the merger will bring about significant synergy because the two state-owned banks have complementary business activities and extensive distribution networks. If the deal goes ahead and is completed by May 2007, the 100-percent state-controlled bank will be able to diversify its services by adding life insurance and trusts, for example, to its products and so strengthen its position.

But there is still much to be done. The financial burden of staff-related issues could constrain state-controlled lenders because the Bank of Taiwan and the Taiwan Cooperative Bank have announced there will be no layoffs in the wake of the deal. If the government wants to make these lenders more competitive, it shouldn't allow them to make such a promise because it goes against the rule that job cuts increase as an improving economy and increased competition force industry consolidation.

Apparently, the government did this to avoid opposition from banking staff. An overlapping workforce will exist as a result of the merger, however, which may need to be combined to boost profitability and operational efficiency. This cannot be done without job cuts.

The government must allow state-controlled lenders to radically overhaul their structures and improve employees' capabilities to compete with private-sector rivals, or no substantial benefits will emerge anytime soon. Unfortunately, there are no concrete signs that such an overhaul will take place.

The government has also aimed to cut in half the number of financial holding companies to seven by the end of next year, but this target appears far-fetched because most of these firms said last week that they were looking for opportunities to take over their rivals rather than undergo a merger.

With little pressure or incentives to facilitate such integrations, most financial holding companies are simply standing their ground. This is clearly not what the government intended when it initiated banking reform targets in October last year.

Although implementing banking reform is never an easy job, a government committed to a vision of a resurgent Taiwan through reform is deserving of support. This is easier said than done, but not impossible.

Japanese Prime Minister Junichiro Koizumi skillfully focused domestic debate on financial reforms to win a broad mandate, and this is what President Chen Shui-bian (陳水扁) should do -- without wavering.

This story has been viewed 2534 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top