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Eugene Chen 陳仲漁

Here are the key challenges for the new authority of finance in Taiwan

BY EUGENE CHEN 陳仲漁

Head of Financial Supervisory Commission in Taiwan has been replaced in July. In his inauguration speech, Mr. Tseng M.J. pointed out that cross boarder business development will be his priority for upgrading Taiwanese financial institutions.

The policy seems not new at all but has its meaning since Taiwanese banks have strengths to grow vis-a-vis banks in other emerging countries after global financial crisis. However, obstacles hindering the development are still there.

The slow pace of privatization ,among other things, is the most ridicules one. There were many successful cases of privatization before such as China Steel, Chung Hwa Telecom,Taiwan Bus...etc.

Unfortunately, the momentum of privatization seems to halt after KMT turned ruling party again 4 years ago.

Why privatization in banking is so difficult in Taiwan? First of the few reasons is lack of ambitious leader who has vision to upgrade the services of the industry. The second is because that majority of people working within the bureaucratic system prefer status-quo to change .

As a result, finance industry which supposes to grow together with the private industries by sharing risks with them has turned to avoid risks and the economy couldn't grown up to satisfactory level any more because of insufficient financial support.

Other factors include the ineffectiveness of banking business interface between Taiwan and the international markets, not enough talents...etc. In short, we don't have enough talents who are willing to take risks in exchange of profits using modern solutions and keep too many conservatives on the top rank jobs to maintain the industry. Given that, there are signs of hope showing bright future.

For instance, prices of many private banks' shares are outperforming state-owned banks due to better EPS in the past few years. Another trend is the more popular skills of cross selling to service both in consumers and corporate clients.

Take Chailease as an example, price of its share is the highest among the financial institutions in Taiwan stock market. It is a leasing company relying banks to fund their businesses. Yet the company makes better profit than banks by offering trade finance, SMEs finance, and leasing which are indifferent from banks' products.

From the development of the company, we notice that it has been more flexible and more willing to take risks with higher margin. It also knows how to shift risks to other parties in stead of following state-owned banks' practice by taking collaterals only. Its operation platform for factoring business has been copied by many banks.

From the ranking of top ten banks using SME Guarantee fund in the past ten years, we notice that there are more private banks than state-owned banks using the guarantee fund against the higher risk of SMEs lending in the pass three years.

It appeared that nearly all top ten were state-owned banks only five years ago. During the same time, it is noted that market share of private banks within the economy is picking up slowly while the state-owned banks are shrinking their share.

Based on the experience and business nature, we know that many development banks are better to be state-owned. It is because businesses of development banks are often linked with government development policies many of which are not only in pioneer status but also taking long times to recover investments.

However, when comes to commercial banking , it is too matured to use tax payers' money to compete with private banks for profits.

Facing the bright but challenging future, it seems that the new financial authority of Taiwan needs to keep less bureaucrats in high position and recruits more talents from private sectors to revamping the industry and try to privatize them as soon as possible.

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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