ndustrial Bank of Taiwan is looking to undertake cross-business mergers to expand its services as a springboard to eventually become a full service investment bank, bank president and chief executive officer Kenneth Lo (駱
As a new bank, Lo said, IBT has plans to invest NT$10 billion (US$314 million) in the Internet, semiconductor, fiber-optic, telecommunications and biochemical sectors in the first three years of operation.
Major IBT shareholders include Teco Electric and Machinery, Taiwan Cement, China Steel, United Microelectronics Corp and Aurora Corp. The bank has named Samuel Hsieh (謝
Meanwhile, IBT has set a goal of maintaining its overdue loan ratio below 1 percent and expects to post US$500 million in net profit in the September-December period.
He added the bank hopes its profits will double each year in the first few years of operation.
IBT, which began operations Sep 2, is the only new industrial bank allowed to start up under rules announced by the MOF in February 1998 to govern the establishment of industrial banks in Taiwan.
The other new addition to the category is China Development Industrial Bank, which was transformed into an industrial bank from a trust investment company in January.
Industrial banks, considered specialized banks under Taiwan's Banking Laws, are responsible for offering medium-and-long term funding to local industries to aid in industrial development and are viewed as a transitory step into investment banks.
"I prefer cross-business mergers," Lo said as he responded to the government's efforts to promote bank mergers in the hope that one or two Taiwan banks will climb into the rankings of the world's top hundred.
"First of all, IBT will open its own securities, bills finance and leasing companies. Those companies will be used as a base for future acquisitions to achieve cross-business mergers," Lo said.
The MOF has drafted a package to encourage mergers in the financial sector.
However, the package, which will provide tax incentives, will focus on mergers in the same business categories, which include the banking business, the securities business and insurance business. Cross-business mergers will be handled on a case-by-case approval basis.
Lo said the establishment of its own securities, bills finance and leasing companies will make the future merger process smoother.
He added a board meeting of the bank has agreed to set up a securities company capitalized at US$2 billion, and the bank will seek approval from the MOF as soon as possible.
"IBT is aiming to create a 1-stop shopping institution. Such cross-business mergers will help the bank become a full service investment bank," Lo said.
Lo said mergers will be a crucial way for Taiwan's banks to compete internationally, in particular after Taiwan is admitted into the WTO.
"The government has sensed the importance of mergers. I am optimistic that we will see the first merger case of major local banks by the end of this year as the MOF planned," Lo said.
Lo said the government is correct in offering tax incentives to future merger cases, in particular the deduction of the land incremental tax, which will account for a large part of banks' costs in property ownership transfers in a merger case.
Along these lines, the Bank of Taiwan has reportedly been targeted by the MOF to merge with Land Bank of Taiwan or Hua Nan Commercial Bank.
"IBT has targeted sectors, such as the Internet, semiconductors, fiber-optic, biochemical and telecommunications," Lo said, "The bank will allocate 70 percent of its investment to companies which are in a pre-IPO (initial public offering) stage and will be able to generate profit soon." Lo said the board of directors has approved several local investment projects which will total US$1 billion, including about US$50 million for a biochemical development plan.
"Furthermore, IBT will invest in foreign-based venture capital companies in the future," Lo said, adding the bank has decided to invest in the US-based Crystal Internet Venture Fund but did not disclose other details.
He said through the participation in foreign investment projects, IBT will be able to build up its international image.
"Loan syndication will be a good way for the bank to extend its touch internationally. IBT will invite well-known foreign banks to join forces in future loan syndication," Lo added.
In fact, IBT and Citibank have been granted a mandate from UMC, a major computer chipmaker in Taiwan to co-manage a US$10 billion syndicated loan to finance UMC's production capacity expansion, he said.
In addition, several foreign investment banks, including Merrill Lynch and Goldman Sachs, have expressed an interest in working with ITB.
Lo said loan syndication will also help IBT diversify risks.
"IBT will extend credit on a project finance basis. That is, we will assign loans to corporates which can present investment projects with great potential to generate profit and steady cash flow to make sure they can pay interest and repay principle." "We have set a goal of maintaining our overdue loan ratio below 1percent," Lo added.
At the end of June, the overdue loan ratio of the local banking sector stood at 5.01percent.
Lo said with broad investment plans and close risk control, the bank expects to post US$500 million in net profit in the September-December period.
Meanwhile, Lo said IBT will be happy to build an alliance with China Development Industrial Bank since the size of future investment plans is increasing in line with the growing local economy and cooperation instead of competition will create a win-win situation.
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