TT: While this is an old question, but can you see how Taiwan compare to other neighbouring countries as a financial hub?
Banko: To put this question into perspective, one must look at the major financial centers of Asia. Tokyo has a vast infrastructure for both the debt and capital markets, Singapore allows the free flow of capital and foreign exchange, and Hong Kong has created a level playing field for all market participants, regardless of nationality. Foreign bank participants in the Taiwan market, who have a minimal market share, represent the world's largest, most innovative and profitable banks. Yet these institutions are limited by parochial regulation. Balance sheet size has been constrained by the amount of branch capital, even though the parent company, with a huge capital base, stands behind the integrity of its branches. Taipei lacks a mature and transparent interbank market, which is a fundamental structural weakness for the industry. Expansion via a branch network has been onerous. Foreign bank exclusion from regulatory permissions, such as mini branch operations, does not serve Taiwan's international image.
TT: What is the positive side of Taiwan's banking sector?
Banko: On the positive side is the increasing interest these global banks have taken in expanding their presence through retail banking, and recent legislation allowing increased foreign ownership of local banks. Global banks can bring much needed innovation to compete against their domestic counterparts. The Internet provides an arena of significant opportunity for innovation and will break down the traditional domestic borders of regulatory prejudice. Just as Taiwan has created a reputation as a high-tech "player", it should capitalize on its IT prowess and take the lead in Internet banking in Asia. If the future is "banking without borders" then Taiwan should encourage the globalization of the financial markets.
TT: What factors will affect the future of Taiwan's financial service sector?
Banko: The downturn in the US economy, decreased volume of world trade, consumer and investor confidence, acrimonious political debate and deadlock, growing dependence on high-tech, all of which place more pressure on the asset quality of banks. Given Taiwan's strong foreign exchange reserves, low level of foreign debt and current account surpluses, it is in better condition to meet these challenges than other Asian economies. President Chen said in an address to American Chamber in Taipei: "Taiwan needs reform to establish an open financial market, for without reform, there will be no sound or open financial environment."
I am cautiously optimistic that the government can clean-up the banking system and promote financial liberalization. There has been plenty of debate on how to address the issue by using public funds to allow corporations to fail and be placed into bankruptcy, but now is the time for concrete action.
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