Fri, Oct 27, 2006 page12

• FSC chairman supports financial consolidation

  Financial Supervisory Commission Chairman Shih Jun-ji, who took over the position three months ago, talked with `Taipei Times' staff reporter Amber Chung and other reporters yesterday about internationalization and consolidation in the fragmented financial sector

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  Taipei Times: Foreign investors have been actively investing in local financial institutions this year. What policies and measures has the Financial Supervisory Commission taken to deal with this matter?

  Shih Jun-ji (施俊吉): Many foreign investors have expressed to us their interests in investing or acquiring local banks to obtain branch networks and talents in local market. Some deals are nearly mature at the moment.

  We welcome any interested foreign buyers, whether they are international banks that can bring in know-how and expertise or private equity funds whose capital injection can help improve the financial structure of local banks.

  We have met and talked with some of the heads of interested foreign banks. We are very willing to offer assistance like we did in facilitating Standard Chartered Bank's buyout of Hsinchu International Bank (新竹國際商銀) last month.

  We would continue to play the role of a facilitator when foreign investors want to invest in or acquire Taiwanese lenders in line with the market's mechanisms. Based on the principle of national treatment, international investors are subject to the same financial supervision as their local rivals.

  TT: What is your optimal ratio in terms of foreign investment in the local financial market?

  Shih: We don't have an exact figure for the optimal foreign investment ratio. Foreign investment in the domestic financial market currently amounts to around NT$90 billion (US$2.7 billion), accounting for more than 5 percent of local banks' assets which total NT$1.7 trillion. The [foreign investment] ratio is not that high.

  But if the ratio shoots up to, say 95 percent, that will be too high. We also have to value what kind of impact -- positive or negative -- the increase of foreign investment will have on employment and profitability.

  TT: You said you support consolidation of the financial sector but oppose monopoly and oligopoly, can you elaborate?

  Shih: If fragmentation and monopoly/oligopoly are on the opposite sides of the spectrum, I prefer somewhere inbetween. For example, if the combined market share of the top four players reaches 95 percent, that is too high and dense. On the other hand, if the combined share is a low 40 percent, that is indicative of a heavily fragmented market.

  The combined market share of Taiwan's top five lenders, including Bank of Taiwan (臺灣銀行) and Taiwan Cooperative Bank (合作金庫銀行), totals only 33.6 percent, which means the sector needs further consolidation.

  I hope to see more banks enjoy an individual market share exceeding 10 percent and that at least one Taiwanese bank can squeeze into the world's top 100. But this must be achieved in line with market mechanisms.

  Second-stage financial reform which originally aimed at achieving a limited number of banks within a specific timeframe has led to a number of problems and demonstrates such measures impracticable.

  TT: Any plans to introduce foreign investment into less-efficient state banks while relieving their concern over policy uncertainty?

  Shih: The Ministry of Finance has hammered out a scheme to introduce qualified foreign investors with decent credit ratings in future disposal of state holdings. Merging state banks and revamping [their operations] by hiring professional managers is another solution. The merger between Bank of Taiwan and the Central Trust of China is a case worth observing. However, during the course of the disposal of state holdings, the government needs to keep its word so that state holdings can run smoothly without disputes.

  TT: What is the commission's stance on cross-strait relaxation for the financial industry?

  Shih: We don't want to talk about cross-strait liberalization in the wake of ongoing controversies. Cross-strait relations involve national policies which, as I said before, does not fall within the commission's jurisdiction. The commission is of one mind with the industry. We believe that banks should follow where their customers go.

  TT: It's been three months since you've taken over this position. What can you say about the job and what are your expectations?

  Shih: This is a very challenging job which involves a lot of pressure -- not political, but [the pressure] stems from the work itself. After all, it means taking responsibility for the nation's financial industry, which involves NT$6 trillion in assets and accounts for 13 percent of GDP.

  We would work hard to strengthen supervision [by implementing both] precautionary and punitive measures. I hope I can make a contribution to the sound development of the nation's financial sector and help build up a healthy industry for the next generation.
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