Global banks face heat from Taiwan rivals in China
International banks such as Citigroup and Royal Bank of Scotland will see new competition in China as Taiwanese banks enter the market, leveraging their cultural ties and links to local firms.
The Taiwanese could quickly reap profits in their giant neighbor this year, helping underpin their battered shares over the coming months, and at the expense of bigger Western rivals which have troubles of their own at home. Taiwan banks should be able to tap the massive Chinese market in the second half of this year after Taipei and Beijing sign a historic cross-strait financial services agreement in May or June. The signing of a broader economic agreement further down the road could give them additional market access.
“Taiwan banks will certainly be a threat for us,” said Kenneth Cheng, a vice president of HSBC in Taiwan. “If they can do business in the yuan soon, they will have an even bigger impact on foreign banks.”
Taiwan enjoys strong language and cultural ties with China and is home to Asia’s fourth-biggest banking market. Despite those advantages, its banks are years behind global giants such as HSBC and Citigroup, due to political obstacles that have so far kept Taiwanese banks out of China.
Leading Taiwan banks such as Cathay Financial, Fubon and Chinatrust were earlier expected to be at a disadvantage when they finally got the green light to enter the market nearly a decade after the global powerhouses.
But now, they are viewed as likely to rapidly narrow the gap as the global giants, reeling from billions of dollars in bad assets, focus on shoring up their positions at home and dilute their emphasis on developing markets like China payday loans with low fees.
In the last two months alone, RBS, Bank of America and UBS have unloaded multi-billion dollar investments in Chinese banks to raise cash, losing strategic business partners in China in the process.
NEW CHINA PLAYS
If they play their cards right, Taiwan banks can quickly become profitable in China by focusing on corporate Taiwanese customers they already serve at home.
Such customers are not only typically more profitable than retail ones, but also require fewer branches to serve, industry experts said.
Nearly all of Taiwan’s top corporations, from chip leader TSMC to petrochemical powerhouse Formosa Plastics and electronics giant Hon Hai have major China operations that require billions of dollars to finance.
“Corporate banking is a business where banks can make profits in the near term,” said Liu I-cheng, a senior vice-president of Cathay, which is Taiwan’s top listed financial holding firm and is seen as an early entrant into China.
“It is possible for a bank to reap earnings of T$1-T$2 billion a year on the business alone,” Liu said.
Apart from Cathay, state-run banks Chang Hwa and units of First Financial and Hua Nan, were also seen as making an early push into China.
Their growth could come at the expense of banks such as HSBC, Citi and Standard Chartered, which have China-based teams catering specifically to Taiwan firms. That business grew in double digits over the past four or five years.
Filed under: technology by Finance Boss