Mega ICBC, the sixth-largest bank in Taiwan in terms of deposits, says it would be ready to merge if government policy called for greater industry consolidation, due to the country's overcrowded banking sector.
However, analysts in Taiwan are split over whether consolidation will take place.
“Taiwan needs to reduce the number of players in the banking sector in Taiwan,” says a spokesperson for Mega ICBC in Taiwan. “If the government followed this policy, Mega Bank would be one of the first banks to comply due to its ties with the government.”
Pandora Lee, executive director of UBS investment research in Taiwan, adds: “There are major structural problems for the banking sector in Taiwan. The market is saturated. When I started researching the banking system in Taiwan about 12 years ago, there were around 50 banks in the country. Today, there are still around 35 banks that serve only 23 million people.”
A saturated banking market and limited loan growth in the banking sector in Taiwanhas encouraged bankers and analysts to push for greater market consolidation in the sector. Loan growth for Taiwan has averaged at around 3% during the past 10 years and loan-growth margins are limited to around 1%, according to Lee.
Mega ICBC is 100% owned by Mega Financial Holding Company, and its majority shareholder is the Taiwanese government. As a result, its bank would succumb to government control if banking policy in Taiwan were to change.
Mega Bank is no stranger to this type of consolidation. In 2006, Mega ICBC was the product of a merger between the International Commercial Bank of China (ICBC) and Chiao Tung Bank to increase efficiency and to benefit from the combined market share in Taiwan.
The government will need to be the main driver in banking consolidation and privatization, as around 50% of banks in Taiwan are government owned.
CY Huang, chairman of the mergers & acquisitions and private equity council in Taiwan, and the president of FCC Partners, a boutique investment firm in Taipei, is hopeful that consolidation will take place soon.
“With the appointment of Christina Liu as Taiwan’s finance minister, I am a lot more positive that banking consolidation will take place,” says Huang.
Analysts like Huang hope for a positive push in economic and financial reform with the recent appointment of Liu. Previously the head of the Council for Economic Planning and Development, Christina Liu is a respected economist in Taiwan with years of experience in banking, finance and tax regulation.
But consolidation might not be on the agenda any time soon.
“[Banking] consolidation would lead to greater levels of unemployment,” says Lee. “As a result, the government will avoid this."
Victor Kung, president of Fubon Financial Holding Company in Taiwan, agrees that consolidation is unlikely, and the root of this is largely political.
“Taiwan needs a stronger financial services industry and the path to this is through banking consolidation, but I don’t see this happening any time soon,” says Kung. “Ma Ying-jeou [the president of Taiwan and the chairman of the Kuomintang Party] shies away from banking consolidation in Taiwan, which has negative connotations attached to it because of previous government actions.”
Chen Shui-bian, the former president of Taiwan between 2000 and 2008, was removed from office and sentenced to life in prison in September 2009 after charges of embezzlement, forgery and money laundering.
His sentence was later reduced to 20 years.
“Chen is in jail because he took bribes while executing financial reform,” says Huang. “However, the motivation – consolidation – was accurate. M&A was the right policy to follow. Financial reform was right. It was just the execution at the time that was wrong."
Kung adds: "Whether the government will have enough political boldness in its next term to push forward consolidation is yet to be determined, but I do hope this is the case.”