Regulators seek consolidation of a fractured financial system in Taiwan

Bloomberg

Regulators in Taiwan are taking another shot at consolidating a fractured financial system that’s scaring off foreign investors.
The island’s authorities last month made it easier for lenders to merge, part of a long-running campaign to whittle down an industry where assets are so thinly spread that banks struggle to compete with regional rivals. Government policy in the 1990s created a market where tiny entities carved out niches for themselves, making them fiercely independent.
Taiwan’s 37 banks have a total of $1.6 trillion in assets between them, roughly as much as Citigroup Inc. The crowd is a double-edged sword: Taiwan’s financial sector doesn’t have a single systemically important bank and the risk of a crisis is low, but margins have become so slim that global investors such as George Soros have
exited over the years.
“Now it’s too difficult for the private sector to consolidate, especially as some small banks still operate quite well and big banks do not want to spend too much money for mergers,” said James Chen, a director at the Taiwan Mergers & Acquisitions and Private Equity Council. “The only thing the government can do is to force state-backed banks to merge, and tackle issues such as cutting staff and opposition from labour unions.”
Assets of Taiwan’s five largest lenders are only about 37 percent of the market’s total commercial banking assets, the third-lowest in the world after Nepal and Bangladesh, World Bank data show. In contrast, Singapore stands at 93 percent and China at 53 percent.
“Many Taiwanese banks have recognised that mergers are necessary to expand,” said Sherri Chuang, deputy director-general of the banking bureau of the Financial Supervisory Commission. “However, in Taiwanese cul- ture, big shareholders tend not to sell their stakes as even small banks have good asset quality.”
Recognising large stakeholders’ reluctance to sell, regulator allowed smaller stakeholders to push for consolidation. In rules that took effect November 30, the FSC said a bank or holding company that wants to buy another financial institution must have a minimum 10% existing stake in its target, lower than the 25 percent required earlier.