ECONOMIST一篇關於台灣金改的報導 - 經濟

Reforming Taiwan's banks

Folly by numbers

Nov 24th 2005 | TAIPEI
From The Economist print edition
The government of Taiwan is getting too much in the way

TAIWAN has much in abundance: soaring mountains, sulphurous hot springs,
delicious food—and banks. A stroll in the streets of Taipei reveals a
kaleidoscope of logos: Taishin's red, E.Sun's green, Taiwan Business
Bank's orange. The capital has 850 branches, or 3.4 for every 10,000
people—almost three times as many as New York and two-thirds more than
it needs, reckons McKinsey, a consultancy.

In all, the island nation of 23m people has about 45 commercial banks,
14 financial holding companies (FHCs, which own at least one bank plus
insurance and broking subsidiaries) and over 300 rural credit co-
operatives. Most are tiny. The top five lenders have just 35% of the m
arket, versus 60-80% in most developed countries.

A lack of scale and fierce competition have left revenues flat and
profits anaemic. In the first half of 2005 the banks' average return on
equity was around 8%, the lowest in Asia, says Fitch, a rating agency.
The government's involvement has stifled efficiency and innovation. In
effect, it controls a dozen banks, including the six largest.

With Taiwan losing manufacturing jobs to China, its economy needs
services. It especially needs banks that are good and big enough to
serve Taiwanese businesses overseas—although China, these customers'
main destination, remains off-limits. Kong Jaw-sheng, chairman of the
Financial Supervisory Commission, the financial-industry regulator,
warns: “Taiwan's banks cannot shut the door on the island. They must
go out and serve clients or they will become like Japan's.” Yet the
industry is in no shape to compete globally or to form the Greater China
financial hub of the government's dreams.

In the past five years the number of banks has barely fallen, from 53
(although two mergers have been announced this month). In October 2004
Taiwan's president, Chen Shui-bian, sought to speed reform by outlining
an ambitious agenda to cut the number of state banks by half to six by
the end of this year; to see a bank in foreign hands by the same date;
eventually to create at least three institutions with market shares of
10%; and to halve the number of FHCs to seven by the end of 2006.

A year on, this initiative is floundering. One reason is the government's
insistence on controlling every aspect of consolidation. It cleaves to
its numerical targets, leading it to force through bad mergers. To bring
mergers about, it has banned new branch openings and demanded the cull
of FHCs even though most are private and healthy. Christina Liu, an
opposition legislator and a finance professor at National Taiwan
University, complains: “Bank reform is a disaster. The market should
decide the number and timing of deals. But this is the plan of a
controlled economy.”

But the government is not in control. It failed to persuade the public
and the bank unions of the need for reform. Its policies were hatched
without consulting the legislature (which must approve the sale of state
assets), local bank bosses or even the regulator. This might not have
mattered had the government been politically strong. But it has a slim
majority and is weak. Backed by the opposition and the media, the unions
have turned bank reform into a controversy ahead of local elections on
December 3rd. They have taken to the streets to oppose takeovers by
private banks (and to protect state-bank workers' cushy jobs).

The government has caved in. After huge protests in September, the
Ministry of Finance halted the takeover of ailing, state-owned Taiwan
Business Bank by E.Sun, a profitable FHC, despite generous terms
including compensation, worth six years' pay, for “retiring” workers.
Mr Kong, the regulator, says he cannot fathom that decision. The unions
are now threatening the merger of Chang Hwa Bank, the sickest state
lender, and Taishin, a strong private group that stepped in to rescue
Chang Hwa this summer, after the government bungled a sale to foreign
bidders. The unions complain that private conglomerates are pillaging
state assets—Taishin belongs to the Wu family, one of three powerful
clans that own several FHCs. The government structured the deal to favour
Taishin and itself, penalising minority shareholders and fuelling the
resentment.

Under union pressure, the government has also failed to support reformers.
In April it removed the chairman of First FHC, Steve Shieh—ostensibly
because he said “bullshit” in a televised government meeting. A
colleague at First says workers “hated” him for making changes, although
he turned the bank into the only state lender private groups want to buy.
Fubon, an FHC, is interested, as is Temasek, Singapore's state investment
agency.

The fixation with numerical targets—such as the one governing six state
banks—has led to a string of bad decisions. Taiwan Business Bank's failed
sale left one state lender too many, so the government simply halted a
planned overseas listing by Land Bank, the second-biggest, to mull a
three-way merger with Bank of Taiwan (BoT), the biggest, and Central Trust.
On November 18th the government finally decided to fuse only BoT and
Central Trust. Insiders at Land say the uncertainty was “hugely damaging”
and prompted “hundreds” of staff to leave. BoT's new boss, whose powers
are so limited that the bank cannot even award performance bonuses, now
faces a distracting integration. Unhappy, too, is the arranged marriage of
Farmers Bank to Cooperative Bank, announced on November 8th, to create
Taiwan's biggest lender. The head of Cooperative is known to have said
privately that he sees no synergies with Farmers. Victor Kung, finance
director of Fubon, says that mergers of state banks “delay reform. Bigger
state banks are harder to buy.”

Private banks are in a bind. Tension across the Taiwan Strait is blocking
direct access to China. To grow at home, they must merge, but unions make
state lenders a risky buy. Although Fubon bought Taipei Bank in 2002, the
two were integrated only this year and returns remain below pre-merger
levels. Yet private lenders are also unwilling to team up with each other.
When the 14 FHC chairmen were asked at a recent parliamentary meeting who
was planning to buy a rival, 11 raised their hands. Asked who was willing
to be taken over, none did. Not surprisingly, Fubon is looking outside
Taiwan for growth: it wants to take a stake in a small Chinese bank,
through its Hong Kong subsidiary.

Meanwhile, high prices will deter foreigners who would otherwise like to
buy Taiwanese banks. Fearing accusations of selling state assets cheaply,
the government is overpricing its shares. In March that ruined the sale of
around 40% of Chang Hwa to foreigners, driving away bidders including ING,
a Dutch bank, and Japan's Shinsei. Others are cutting local branches,
citing low returns.

To reform Taiwan's banks successfully, the government will have to drop
its numerical targets, privatise more (preferably via open auctions) and
remove market-distorting measures, such as the ban on organic growth. It
should also make the regulator fully independent and explain the need for
reform to a sceptical public. All this is politically risky. But it may
also be economically necessary.

http://www.economist.com/finance/displayStory.cfm?story_id=5223143


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