TAIPEI -
Taiwan's banks and listed securities companies can
either battle it out in the domestic market or try to
expand overseas. At present, no real major players from
Taiwan have been deemed a major regional force similar
to the likes of DBS Bank in Singapore. However, the
government's continued efforts to reform the financial
system were given a minor boost on May 31 when E Sun
Bank beat out seven other bidders to purchase the
bankrupt Kaohsiung Business Bank. E Sun agreed to absorb
US$403 million (NT$13.5 billion) of the bank's estimated
$542 million losses. E Sun signed an agreement with the
Central Deposit Insurance Corp, a government body
controlled by the Ministry of Finance, that oversees the
supervision of failed lenders. The official takeover
date is slated for September.
The acquisition
will add another 60 branches to E Sun's network,
boosting the bank's total branches to 114, just under
the nation's second-largest financial services provider,
Fubon Financial Holding Co's 121. The Ministry of
Finance will also allow E Sun to move 38 branches to
Taipei, which will increase competition among rivals
SinoPac Holdings and Fuh-Hwa Financial Holdings. In
essence, that means E Sun will have to spend several
million dollars on opening new branches, renovations and
rental fees. And again, despite the auction being a
success for the government, E Sun will be competing in
an already over-banked market.
Meanwhile, Yuanta
Securities, Taiwan's largest-listed securities broker,
with an estimated local brokerage-market share of 9%,
reported that it may take over one of Taiwan's 14
financial holdings companies (FHCs). The company
indicated that there are two possible targets among the
FHCs, but no names were mentioned, and no timetable was
announced. Yuanta, which already has ties in Singapore,
is also looking to expand further overseas into South
Korea and is one of two preferred bidders for Korea's LG
Investment and Securities Co, South Korea's
second-largest brokerage. Yuanta owns about 20% of
Singapore-listed broker Kim Eng Securities, which gives
it important regional coverage of Southeast Asian
markets.
The successful takeover of a small FHC
would give Yuanta access to a whole new customer base
and distribution system. Large FHCs with brokerage arms
include Fubon FHC, SinoPac FHC, and Chinatrust FHC.
Cross-selling of financial products allows for
additional fee income and increases the efficiency of
company staff. For instance, staff at SinoPac Securities
(part of SinoPac FHC) now are able to sell insurance,
futures and investment products in addition to
securities. To do this, staff must pass exams related to
each product type, such as insurance, futures and so on.
The role of the traditional broker just relying on
commission from equity sales is slowly diminishing in
the face of stiff competition and falling commission
rates.
Regional Asian coverage and, if possible,
a move into South Korea would vastly boost Yuanta's
scale and size, plus increase the potential for profits.
Lee Chang, president and managing director of Yuanta,
indicated that the company would pay cash for the
acquisition without commenting on any price. Korea
Development Bank is arranging the sale of LG Investment
and Securities but has postponed the result at least
until next month.
Other FHCs that have made
moves into overseas markets include Fubon FHC. Fubon
acquired Hong Kong-based International Bank of Asia
(IBA) last year to expand into China. IBA started
operations in China in May, becoming the first
Taiwan-controlled bank operating on the mainland. At
present, Taiwan banks can't deal in yuan, and again this
week, the Ministry of Finance denied a press report that
the government was prepared to allow this in Taiwan.
Of course, there is no guarantee that expanding
offshore will provide instant profits, but with a
saturated domestic market, increased expansion overseas
is inevitable for Taiwan's numerous financial
institutions, which otherwise will be forced to duke it
out in the domestic market.
Scott
Ridleyworks in a financial institution in
Taipei.
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