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Eugene Chen 陳仲漁

How Taiwanese banks can compete with Chinese banks

BY EUGENE CHEN 陳仲漁

Ostensibly, the country's GDP per capita remains little change in the past twenty years and the banking industry hasn't change much either. It is difficult to envisage the future development of Taiwanese financial industry with hope.

However, all banks are crazy for setting up branches , subsidiaries, or even leasing companies entering China market since 2012. It is an exchange term for allowing Bank of China and Bank of Communications to open branch in Taiwan.

Among the targets of market in China are local Taiwanese companies ,joint ventures, and state-owned companies, especially to those companies moving to China in the past twenty years with direct financial support.

Accumulated amount of those Taiwanese investments , mostly in the form of factories, are estimated to some USD150 billion , most of which are formerly funded through off shore banking services of banks due to lack of financial services bridge of the Taiwan strait.

Another business is to lend USD to Chinese banks whose cost of USD funding internationally is still higher than Taiwanese banks.

In addition, 2 million tourists from China have visited Taiwan in 2012 and is overtaken Japan as the largest contributor to tourist industry. It is expected to double this year. All signs show that trade relationship between Taiwan and China is getting closer.

While forming new strategy to penetrate market in China, Taiwanese banks have plenty things to worry about at home.

For instance, though average non performing loan of banks has been down to less than 1% in 2012 vis-a-vis global economic recession, over 90% of total revenues are still from traditional commercial businesses with other services incomes from security or financial services accounting for less than 10%.

In other words, there are nothing much sophisticated services at home to be able to compete with Chinese banks some of which are ranking top ten players world wide currently.

Besides, all banks' top executives need to be appointed or agreed by the government regardless if they are state-owned or private- own. Many of them are rotating among different banks.

They are not necessary to be professionals in banking as long as they have good connection with the top rank officers of the ruling party. Even if they are professionals, their performance could not be significant for banks.

This is because all banks are share similar strategies and technologies and even competing each other for valued customers for years.

The only factor that Taiwan has for the future is how to make full use of IT which is poised to convert many services into solutions for financial institutions to serve customers.

Hopefully all core banking operations will be replaced by simple solutions with unlimited capacity using cloud technology soon. If successful, it will not only grow doestically but also with China market.

Otherwise, there is no way that Taiwanese banks can compete with banks from China.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Eugene Chen 陳仲漁

Eugene Chen 陳仲漁

Eugene Chen 陳仲漁 is currently the Managing Director and co-owner of Grand Aspect International, a consultant company. He is also one of the Turn Around Managers of European Bank of Reconstruction and Development (EBRD). He is an expert in Green Energy and Trade Finance.

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