Mon, Oct 15, 2007 - Page 8 News List

Editorial: Where profits and regulation mee

Does keeping the Export-Import Bank around just to stop a government-owned export credit agency from disappearing make any sense?

That's what lawmakers propose, desperate to hold off a government plan to merge three state-run banks, including the Export-Import Bank of the ROC, into one mega financial holding company.

The Cabinet announced in August it would establish the Taiwan Financial Holding Co by merging the Bank of Taiwan, the Land Bank of Taiwan and the Export-Import Bank within three years.

But the legislature's Finance Committee last week approved a resolution demanding the Ministry of Finance suspend the merger. They attacked the plan to scrap the Export-Import Bank and implied a statute governing the bank must be scrapped first before moving forward with the merger.

While the committee is busy fighting a rational consolidation so that these state lenders can continue their existence as mediocre performers with undiversified portfolios, they are ignoring whether the merger would create synergy and why the market is so eager to see the merger.

It is a significant development to see the government pushing for a merger of state banks that would rid the market of some of the weaker private financial holding companies. Lawmakers should pay attention to the problems the merger could mitigate.

If the committee's resolution, which was non-binding, was notable for anything, it was for the debate over whether the Export-Import Bank deserves its favored status and whether the merger would eliminate its export credit role.

While the Bank of Taiwan and the Land Bank of Taiwan are commercial banks, the Export-Import Bank was established in 1979 specifially to provide financial support for trade through export credit insurance, trade finances and other foreign investment assistance. As the Export-Import Bank is much smaller than its potential partners, some lawmakers have expressed concern that it would be dwarfed in the new management structure, with grave implications for its crucial services to exporters.

The bank's contribution to the growth of the nation's export-oriented economy is huge. Nevertheless, this doesn't change the fact that the bank suffers from low profitability because profit maximization is not its main objective.

The argument that a specialized policy-related role is reason enough to leave a poor-performing lender alone should no longer guide our financial market, forcing lenders to labor under above-average funding costs for policy-related obligations and sizable low-margin lending. Business sustainability and operation efficiency simply cannot be ignored.

It is gladdening to hear that our lawmakers are concerned about the key role of the Export-Import Bank and how policy-based finance will function following the merger. Instead of opposing the merger, however, they should look into how to supervise its execution to ensure that the new financial holding company will carry out its role efficiently.

The Ministry of Finance is touting the merger, saying it will lead to diversified services for customers, that government policies would be implemented efficiently and that it would solve personnel, wage and budget problems associated with state banks.

It is not surprising to hear this kind of optimism from the ministry. In the end, however, the merger is subject to political and regulatory developments and competition on the market will determine whether the ministry was right to be so optimistic.

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