The competition for a larger piece of Taiwan's banking market has further heated up. The Central Deposit Insurance Corp (CDIC), which handles failed financial institutions in Taiwan, stated on December 14 that it will pay HSBC NT$47.49bn ($1.5bn) to take over debt-ridden Chinese Bank of Taiwan. HSBC will pump $300m to $400m of capital into the Chinese Bank to maintain financial ratios and increase its island-wide branch count to 47, acquiring approximately 1m more customers.
Chinese Bank was placed under the control of the government's CDIC earlier this year after the declaration of insolvency by the bank's parent, Rebar group.
At a time when the industry has only recently recovered from a period of turmoil that followed a consumer credit melt-down in 2006, the government is encouraging consolidation in the banking industry, where nearly a third of the domestic banks are losing money.
Meanwhile, the Taiwanese government has been eager to cut down the number of state-controlled banks by half since 2004. While 60% of the banking sector's assets were in the hands of government-owned banks back then, there remains six of them today, which account for 50% of the sector's total assets and the figure is expected to decrease even further in the near future.
HSBC, the second largest bank in the world, said the acquisition of the debt-ridden lender will help it speed its expansion in the Taiwanese market, one of Asia's most contested and fragmented markets, and catch up with its rivals.
"The Chinese bank will provide HSBC with significant opportunities in retail, commercial and corporate banking," Alistair Currie, the president of HSBC Taiwan, told local press.
At present, Citigroup, Standard Chartered and HSBC are the leading foreign banks competing for clients in Taiwan, the third wealthiest market in Asia.
Citigroup, the most profitable foreign bank in Taiwan, agreed to buy the Bank of Overseas Chinese (BOOC) for NT14.1bn ($427.2m) in early December to expand its network fivefold to 66 branches, as the government bars banks from opening new branches to encourage mergers in the industry.
The move followed the London-based Standard Chartered's November 2006 buyout of Hsinchu International Bank for NT40.5bn ($1.2bn), as well as the 2007 Amsterdam-based ABN AMRO's acquisition of Taitung Bank for $209m, which, before the merger, had $2.5bn in debt over assets.
After the acquisition, HSBC's network will increase from 8 to 47 branches. Although HSBC expects growing profits following its belated push into the market, competition remains fierce. Official figures show that HSBC posted a pretax profit of NT$2.56bn in the January-October 2007 period, well behind its larger New York-based rival, Citibank, which posted an earning of NT12.18bn.
To complete the deal, HSBC is required to establish a local subsidiary with a minimum capitalisation of NT$10bn ($300m) in three years, or within one year of HSBC's total assets in Taiwan exceeding NT$450bn, whichever comes first, the HSBC statement said.
"HSBC is under heavy pressure to accelerate its acquisition [process] after [expansion moves by] Citigroup and Standard Chartered" Parker Wu, manager at the Agricultural Bank of Taiwan in Taipei, told the local press. "It is positive for Taiwan banks as the HSBC move will help stimulate and upgrade the overall competitiveness", he added.
