Minister of Finance Paul Chiu (
The Ministry of Finance says the merger will raise Taiwan's financial competitiveness, lead to further consolidation in the banking industry and boost the new bank's ranking among world institutions to 60th from 70th place.
But the ministry may be confusing brute size with competitiveness and efficiency.
Unless banking management in Taiwan significantly changes and financial efficiency improves, the disappointing competitiveness of Taiwan banks will remain unchanged.
President Lee Teng-hui (
Minister Chiu stated soon afterwards that at least one bank merger would be announced before the end of 1999.
News of the three-bank merger validated both President Lee and Paul Chiu's promises, but this writer is not optimistic that the merger will lead to any improvements in Taiwan's inefficient banking sector.
Banking used to be one of Taiwan's brightest industries, but that was eons ago. Like many anemic traditional industries, Taiwanese banks now need regular blood transfusions from the government.
The performance of local banks has dipped even further recently.
The overall value of non-performing loans is now fast approaching NT$700 billion, while the banks' average rate of returns on equity is less than 10 percent.
Banks in Europe and the US post average rates of return of 20 percent, giving readers a glimpse of the lackluster performance of domestic banks.
Their deteriorating performance is directly linked to rapid changes in the banking sector. Competition has heated up considerably, with the rapid increase in the number of banks and direct finance (funding through financial markets instead of banks) in Taiwan.
Most important, however, is the backward management style of banks and their stunningly mediocre efficiency.
Yet there is still cause to be optimistic about Taiwan's banking sector.
One reason is the growth potential of local banks. Deposits and loans will, of course, grow with economic development, but banks should be able to absorb some of the huge flows of money that funnel through Taiwan's notorious underground banking system.
Moreover, banks should bene-fit from Taiwan's growing foreign trade, direct and indirect foreign investment, financing, fund transfers and asset management volume.
There's also great room for improvement in performance. If banks can boost their efficiency, they can lower operating costs and provide customers with new services.
Anyone who has done business with banks in Taiwan is no stranger to the utter absence of alacrity or efficiency in transactions.
Even the simplest transaction requires that people visit the bank in person for a torture session of forms and pointless waiting, while the same trans-action could be taken care of with a phone call or fax in other countries.
This not only wastes the time of customers, but also wastes the banks' scarce resources.
Whether banks can get rid of these prehistoric rituals and improve their service will be a test of the wisdom and verve of banks.
Hwang Jyh-dean is an associate professor in the international business department at National Taiwan University.
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