Banking ties with China may boost Taiwan's banks this year amid an overcrowded home market and a global economic environment that could reduce their profits.
"The prospect for the banking industry looks dim, at least in the first quarter, depending on how much worse the euro zone debt crisis gets," said J.J. Lee, chief investment officer at the fund unit of Fubon Financial Holding.
"A stake investment by mainland banks would offset the downside of the outlook and could be the biggest story of 2012 for financial shares," he said.
Taiwan recently announced it will allow banks from political rival China to take stakes of 5 percent in local ones, while Hua Nan Financial is bidding to become the first Taiwan bank to make a direct investment in a Chinese peer. Hua Nan Financial is seeking a 20 percent stake in China's Fujian Haixia Bank.
Hopes of a bright future for banks grew after Taiwan and China signed a trade deal in June 2010 that brought ties to their best in 60 years of hostility and held out the promise of access to the huge and lucrative mainland banking market.
But little progress was made since the deal, largely due to sensitivity over a reciprocal opening of Taiwan's financial sector while China still retains its political aim of taking control of the self-ruled island.
Two of the mainland's four big banks, Industrial & Commercial Bank of China and China Construction Bank, are widely expected to be the first to invest in Taiwanese counterparts.
The other two, Bank of Communications and Bank of China, have been given permission to upgrade their Taiwan offices to branches.
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