Bank mergers and acquisitions are once again on the menu after the Cabinet said consolidation among state-run banks would catalyze the financial sector. The call for further consolidation comes as Taiwanese lenders have been seeking opportunities in China, only to find that they might not be competitive enough in terms of business scale and capital strength.
It has become increasingly clear that Taiwanese banks have limited scope for earnings improvement within an overcrowded and fragmented banking sector, a situation that can improve only if there are fewer players in the market.
Last week, Chinatrust Financial Holding Co president Daniel Wu (吳一揆) said at a forum that the nation’s banking system is still fraught with the problems of overbanking and interest margin compression. He warned that domestic banks have limited buffers within their current capital structure to absorb additional shocks from a sudden global financial crisis.
At the same forum, Yuanta Financial Holdings Co chairman Yen Ching-chang (顏慶章) said the still-high market share of state-controlled banks — as high as 50 percent at present — and the government’s intention to encourage state banks to acquire private lenders, rather than vice versa, could negatively impact overall profitability and efficiency and be counter-productive.
On the other hand, LCD panel maker AU Optronics Corp’s chairman Lee Kun-yao (李焜耀) said last week that one of the main obstacles to a potential merger between his company and rival Chimei Innolux Corp is that the putative combined entity would have difficulty borrowing from any bank in Taiwan.
This is because Taiwanese banks are too small and many LCD makers’ borrowings have already nearly reached the banks’ loan ceiling. In other words, based on the government’s capital rules, no bank would be able to lend to a merged AU Optronics and Chimei, Lee said.
The thinking is that size is critical in the struggle against international competition and the government’s support for large-scale mergers and acquisitions among domestic financial institutions is the only way to enhance their competitiveness.
However, this misses the point that the country’s banking system needs more deregulation before such mergers and acquisitions are likely to happen, because current rules are too strict to allow banking consolidation. A restricted business environment also prevents domestic banks from offering diversified and innovative services for niche markets, not to mention the effect it has on them developing the strength to compete with foreign rivals.
Mergers and acquisitions represent the correct direction to move in, even though there have been flaws in the implementation process during the past few years. In the short term, this goal may be hard to achieve because there is still potential opposition from labor unions at state-owned banks, while possible objections by politicians — who have blocked several mergers and acquisitions in the past few years, for fear of benefiting private financial conglomerates — also remain a major obstacle.
The government has vowed to carry on financial reform and said its priority is to catalyze banking consolidation.
However, the truth is that the government is not as determined to force the issue as before, given concerns about the potential social backlash. Moreover, mergers of state-run banks are time-consuming and do not necessarily generate the synergistic benefits expected. Developing an environment that encourages voluntary mergers in compliance with market mechanisms may be the only catalyst for further banking consolidation that the government can provide in the short term.
Late last month, Beijing introduced changes to school curricula in the Inner Mongolia Autonomous Region, requiring certain subjects to be taught in Mandarin rather than Mongolian. What is Chinese President Xi Jinping (習近平) seeking to gain from sending this message of pernicious intent? It is possible that he is attempting cultural genocide in Inner Mongolia, but does Xi also have the same plan for the democratic, independent nation of Mongolia? The controversy emerged with the announcement by the Inner Mongolia Education Bureau on Aug. 26 that first-grade elementary-school and junior-high students would in certain subjects start learning with Chinese-language textbooks, as
There are worrying signs that China is on the brink of a major food shortage, which might trigger a strategic contest over food security and push Chinese President Xi Jinping (習近平), already under intense pressure, toward drastic measures, potentially spelling trouble for Taiwan and the rest of the world. China has encountered a perfect storm of disasters this year. On top of disruption due to the COVID-19 pandemic, torrential rains have caused catastrophic flooding in the Yangtze River basin, China’s largest agricultural region. Floodwaters are estimated to have already destroyed the crops on 6 million hectares of farmland. The situation has been
The restructuring of supply chains, particularly in the semiconductor industry, was an essential part of discussions last week between Taiwan and a US delegation led by US Undersecretary of State for Economic Growth, Energy and the Environment Keith Krach. It took precedent over the highly anticipated subject of bilateral trade partnerships, and Taiwan Semiconductor Manufacturing Co (TSMC) founder Morris Chang’s (張忠謀) appearance on Friday at a dinner hosted by President Tsai Ing-wen (蔡英文) for Krach was a subtle indicator of this. Chang was in photographs posted by Tsai on Facebook after the dinner, but no details about their discussions were disclosed. With
On Sept. 8, at the high-profile Ketagalan security forum, President Tsai Ing-wen (蔡英文) urged countries to deal with the China challenge. She said: “It is time for like-minded countries, and democratic friends in the Indo-Pacific region and beyond, to discuss a framework to generate sustained and concerted efforts to maintain a strategic order that deters unilateral aggressive actions.” The “Taiwan model” to deal with the COVID-19 pandemic provides an alternative to China’s authoritarian way of handling it. Taiwan’s response to the health crisis has made it evident that countries across the world have much to learn from Taiwan’s best practices and if