Size does not necessarily matter, according to foreign banking experts who suggested yesterday that local banks narrow the scope of their business.
"Many Taiwanese banks are within the 80 percent of banks in the Asian region that have no idea of what their customers really need," Greg Gibb, managing partner of McKinsey & Co Inc in Taiwan, said at a book-launching ceremony.
The economic environment has been changing fast in Taiwan in recent years, owing to industry migration, the emergence of financial holding companies and a wave of consolidation among local banks, Gibb said.
However, few banks are capable of adjusting their business strategies to capitalize on new opportunities amid the volatile environment, he said.
Fourteen financial holding companies have been established since 2001. But Gibb said those companies generated little value due to limited synergy, which may result in a wave of breakups among them in the next two or three years.
Bank mergers are needed in such a saturated market, he said, but it is the scale, not the business scope that should be expanded.
"Many local banks are seeking to become universal banks, but this model has failed in most cases," Gibb said. "They should find out what they are good at and focus on their core businesses that will create more profits instead of volume."
The banks should modify their structures in accordance with their customers' needs, not functions, Gibb suggested. For example, the needs of large enterprises are different from those of small- and medium-sized companies, but banks appear to be hardly aware of this point and have failed to come up with proper solutions for various customers, Gibb said.
Gibb also suggested that banks collaboratively capitalize on a large number of small- and medium-sized firms, which account for 98 percent of the nation's enterprises, by sharing portfolios that can be indicators of the companies' credit status.
Taiwan has not yet developed a mechanism to evaluate the credit of small and medium-scale companies, which makes it difficult for such firms to get bank loans.
As for banks that are eying the lucrative Chinese market, Gibb encouraged them to enhance their specialties and develop an exceptional business in order to make themselves distinct from Chinese banks and the more than 200 foreign banks now in the market.
Christian Raubach, a principal of McKinsey, urged local banks to take practical actions to make reform happen, saying that South Korea's banking industry, which lagged far behind its Taiwanese counterpart in 1995, has now surpassed it because the banking sector here is reluctant to move forward.
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