Following the announcement last Friday that HSBC would take over The Chinese Bank, there is one obvious message that domestic banks may not like to hear: The four largest foreign banks in Taiwan -- ABN Amro, Citibank, HSBC and Standard Chartered -- have all expanded their presence here and are emerging as potential competitors in tapping the "Greater China" region.
Following two days of bidding and negotiation, HSBC agreed to rescue The Chinese Bank with the help of NT$47.5 billion (US$1.47 billion) in government funds. The acquisition will increase HSBC's local network from eight to 47 branches, helping it to compete with local and foreign rivals in Asia's fourth-largest banking market.
HSBC's move to bail out The Chinese Bank follows ABN Amro's acquisition of Taitung Business Bank in June, Citibank's take over of the Bank of Overseas Chinese in April and Standard Chartered's absorption of Hsinchu International Bank last year.
Taiwan's banking landscape has changed substantially over the past few years, after several domestic banks -- with government encouragement -- moved to acquire small and problematic lenders in a bid to compete with foreign rivals. Foreign private equity funds also played a role.
In October, for instance, Cathay Financial Holding won a government auction to take over China United Trust and Investment. In September, SAC Private Capital Group and GE Money announced they would inject capital into the Cosmos Bank. In July, a Carlyle Group-led consortium agreed to buy a nearly 37 percent stake in Ta Chong Bank. In June, Chinatrust Commercial Bank absorbed the Enterprise Bank of Hualien, while Longreach Group purchased a 51 percent stake in the EnTie Commercial Bank.
Other notable examples over the last few years include Shin Kong Financial Holding's inclusion of Macoto Bank under its financial umbrella, Taishin International Bank's acquisition of Chunan Credit Cooperative and Hsinchu Tenth Credit Cooperative, and the E.Sun Commercial Bank bail-out of the Kaohsiung Business Bank and the Union Bank of Taiwan's bail-out of Chung Shing Bank.
Despite that pace of consolidation, there are warning signs that the banking sector's efforts to sharpen its competitive edge are under pressure in the face of government flip-flops on issues such as disposal of state holdings in government-run banks.
Mega Financial Holding's attempt to drop plans to acquire smaller rival Taiwan Business Bank and the limited progress made in Taishin Financial Holding's merger with Chang Hwa Bank, among others, reflect just such concerns.
Nevertheless, this spate of foreign banks acquiring local lenders deserves wider attention as these global players are riding on a strong international network, global expertise and financial strength.
With the newly included local networks, these foreign banks will begin to embrace opportunities in retail, commercial and corporate banking that have until now been mostly covered by local peers.
In other words, these global players are expected to serve not only retail customers here but also provide services to small and medium size enterprises and large corporations doing business in China -- areas that local banks are restricted from because of national security concerns.
Whether or not these foreign banks will prevail in Taiwan, especially in wealth management in the Greater China region, remains to be seen. However, it becomes more likely if local banks fail to provide professional and tailor-made services, stop looking for merger targets to strengthen their market share and if the government fails to develop an appropriate mindset with regard to capital management by local banks.
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