The government’s efforts to promote the consolidation of state-run financial institutions will not reverse their structural weaknesses, even though the move might help them to better compete in Asia, Fitch Ratings Inc said in a recent report.
State-run financial institutions command 50 percent of the market by assets, but they tend to be less commercially oriented in operations, which leads to depressed loan pricing and weak margins compared with their private peers, the report said.
Surplus liquidity coupled with weak domestic credit demand weighs on the sector’s profitability, the report said.
The Ministry of Finance and the Financial Supervisory Commission have encouraged consolidation among state-run financial institutions to help address longstanding issues and in the hope that one or two might become regional powers.
Toward that end, the regulators recently signaled their willingness to give state-run institutions greater flexibility by extending their merger-and-acquisition targets to include private peers.
The idea of building regional champions remains alive, but has gained little headway so far, Minister of Finance Chang Sheng-ford (張盛和) said earlier in a meeting of the legislature’s Finance Committee.
While consolidation would increase the scale of Taiwanese lenders, it is unlikely to produce substantial operational synergies to boost the sector’s structural strength, said Jonathan Lee (李信佳), a senior director at Fitch who covers financial institutions.
Taiwanese state banks have a lower capitalization compared with large private banks, and they are not in a strong position to withstand potential shocks from overseas operations, especially in emerging markets, Lee said.
Implicit policy roles — branches in unprofitable regions and offering preferential interest rates on deposits to public school teachers, civil servants and military personnel — will continue to burden the profitability of state-run banks, Fitch said.
A less flexible compensation has also contributed to their limited product differentiation and significantly weaker fee income generation compared with large private banks, Lee said.
In addition, resistance from labor unions and political opposition would constrain operational efficiency gains linked to branch and headcount decreases in the wake of mergers, Fitch said.
Consequently, consolidation is not expected to enhance state banks’ credit profiles in the near term, although it would reinforce the systemic importance of the banks, Lee said.
Fitch expects Taiwanese regulators to remain highly supportive of the banking system and state-run banks in particular.
Potential resolution regimes for major banks have been a key point of discussion in Europe, the US and Asia in recent years, but Taiwan is unlikely to follow suit in the foreseeable future, Fitch said.
The government often calls on state banks to support or merge distressed financial institutions to maintain the system’s stability.
US PROBE: The Information reported that the US Department of Commerce is investigating whether the firm made advanced chips for China’s Huawei Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract maker of advanced chips, yesterday said it is a law-abiding company, and is committed to complying with all applicable laws and regulations including export controls. The Hsinchu-based chip giant issued the statement after US news Web site The Information ran a story saying that the US Department of Commerce has launched a probe into TSMC over whether it breached export rules by making smartphone or artificial intelligence (AI) chips for China’s Huawei Technologies Co (華為). “We maintain a robust and comprehensive export system for monitoring and ensuring compliance,” the statement said. “If we
DEMAND FOR AI CHIPS: Net income in the third quarter surged 31.2% quarter-on-quarter to NT$325.26 billion, the strongest quarterly return in the company’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday raised its revenue forecast to annual growth of 30 percent this year, thanks to strong and sustainable demand for artificial intelligence (AI) processors for servers. It was the second upward adjustment from 25 percent year-on-year growth estimated three months ago, despite recent concerns about whether the AI boom could be another technology bubble. “The demand is real. It’s real. And I believe it is just the beginning of this demand. Alright, so one of my key customers said the demand right now is ‘insane,’” TSMC chairman and chief executive C.C.
Starbucks Corp might have the more recognizable name, but 7-Eleven’s City Cafe remains the king of Taiwan’s fresh coffee market, helped by the convenience store chain’s extensive market presence and product diversification. President Chain Store Corp (PCSC, 統一超商), which runs both the 7-Eleven and Starbucks store chains in Taiwan, established the City Cafe brand in 2004. The brand took off when actress Gwei Lun-mei (桂綸鎂) became its spokesperson in 2007. City Cafe’s sales exceeded NT$10 billion (US$311.69 million) for the first time in 2015, surpassing the revenue of Starbucks Taiwan, and rose to more than NT$17 billion last year, exceeding the NT$14.98
COUNTRY-BASED: Setting ceilings on sales of the technology would tighten limits that originally targeted China’s ambitions in artificial intelligence amid security risks US officials have discussed capping sales of advanced artificial intelligence (AI) chips from Nvidia Corp and other American companies on a country-specific basis, people familiar with the matter said, a move that would limit some nations’ AI capabilities. The new approach would set a ceiling on export licenses for some countries in the interest of national security, according to the people, who described the private discussions on condition of anonymity. Officials in the administration of US President Joe Biden focused on Persian Gulf countries that have a growing appetite for AI data centers and the deep pockets to fund them, the people