Mergers seen as key to banking sector's success in Taiwan

This article was written by Marie Feliciano and published by the Macroview Weekly on June 29, 2005.

Experts pointed out recently that the ROC government needs to wield the political will to push for the privatization of state-owned banks and accelerate consolidation in Taiwan's fragmented financial sector.

"We think this is like a test to the government's will to privatize these state-controlled banks. If the government can take a longer-term view and compromise to speed up the whole process, it will really help speed up overall reform in Taiwan's banking sector," said Jonathan Lee, director of Banks and Financial Institutions for Fitch Ratings in Asia.

Other representatives from Fitch suggested that bank consolidation would help the sector become more profitable and improve Taiwan's risk management system, as resources would be concentrated on a smaller number of better performing banks. Proper handling of labor union resistance to consolidation in government banks is also important to the success of any mergers in Taiwan.

State banks in Taiwan still dominate the market. The sector's top five banks, all controlled by the government, held an aggregate 39.1 percent share of bank deposits by the end of 2004.