Taiwan urges lenders to boost China presence

Only six Taiwanese banks have ventured to open a branch in China after restrictions were relaxed.

Taiwan’s financial regulator urged the island’s banks to open more branches in China, pushing them to expand more quickly in the world’s fastest-growing major economy as competition erodes returns at home.

“If Taiwan’s finance companies can’t raise their competitiveness, they’ll remained buried in a domestic market that’s overbanked and rife with price undercutting,” Lee Jih- chu, deputy chairwoman at the Financial Supervisory Commission, said in an interview in Taipei on Aug. 26. “That’s our biggest concern right now.”

Fewer than one in five Taiwanese banks has opened a branch in China after investment restrictions were relaxed amid warming ties between the former civil war foes. China, with a population more than 50 times bigger than Taiwan’s and $15 trillion in banking assets, is the island’s largest trading partner, accounting for more than two-thirds of its exports.

Taiwan has been pushing for consolidation in a home market that has 37 domestic banks, 28 foreign lenders and more than 300 credit associations competing to serve 23 million people. That’s forced average loan profit margins for its banks to less than 1.5 percent, compared with 2 percent or more for Chinese rivals, said Tseng Fan-jen, an analyst at KGI Securities Co.

“Given the fact that state-controlled banks collectively still account for the majority of market share, meaningful banking sector consolidation will only happen if the government is determined to actively pursue it,” said C.J. Chien, senior vice president and head of financial institutions at DBS Taiwan Ltd. In China, the Taiwanese banks lag behind rivals “in terms of market-entrance timing and absolute scale,” he said.

Only six Taiwanese banks have set up branches in mainland China so far, Lee, 51, said. The lenders should also considering opening more outlets in Southeast Asia, she said.

View the full story in Bloomberg.