The Ministry of Finance's latest bank merger will do little to upgrade the mega bank's efficiency until possible privatization in the future eliminates redundant personnel.
The merger announced between the Bank of Taiwan (
According to a preliminary evaluation report on the merger yesterday, a financial holding company will be set up to control all business groups in the three banks. Under the financial holding company, 16 subsidiary companies will be set up to run various financial and non-financial services, including commercial and industrial banking, trusts, securities, securities investment advising, financial information services, real estate development, life insurance, securities investment, credit cards, futures and venture capital.
The report also stressed that the total assets of the merged commercial entity would make it the world's 74th largest bank.
"To become a top 100 bank in the world is vital to Taiwan's banking industry," said John Chung
"In areas like syndicate loans or other international loans, with such ranking, no bank would be considered eligible in participation. In anticipation of entry into WTO, we definitely need to be in the top-100 bank club. And I think that's the main purpose of this merger. Other benefits should be a secondary consideration," said Chung.
But a domestic credit rating agency views the merger as bad news for the biggest of the three banks and immediately lowered its rating on the Bank of Taiwan on Wednesday after the merger was announced.
"The financial status of the Bank of Taiwan could be diluted [by the merger]," said Chen Chung-hsing
Meanwhile, Taiwan Ratings raised the credit rating of the Central Trust of China, since it predicted the merger could improve that institution's financial status.
The agency also warned that retaining redundant employees -- who will be hard to lay off since most are government officials -- could offset potential benefits of the merger.
"Although the merger could create a heavy-weight financial institution that controls 18 percent of the market share in Taiwan, the commercial benefits of the merger are likely to be affected by [the fact that the bank is] state owned, since mergers often involve lay-offs and branch closures," said Chen.
The legal system protects the working rights of all civil servants, meaning unless they commit a serious crime or are caught in a major act of misconduct, they can neither be laid off nor fired.
However, one banking pundit questioned whether job-security can be maintained for all government officials in today's competitive market.
"The merger [of the three state-banks] is only the first stage of consolidation," said Norman Yin
"When it gets to the second stage, the government may decide to privatize the merged institution and then there would no longer be any job security protection for these bank staff," said Yin.
The privatization of state-owned companies was a central policy of the KMT government over the last decade it was in office. But whether the DPP administration decides to continue down the path of privatization remains to be seen.
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