Taiwan’s 3 Gov’t-linked Banks to Strengthen Operations

Taipei, June 26, 2012 (CENS)--To enhance ROA (return on asset) and ROE (return on equity) rates, Taiwan’s three government-linked banks—Chang Hwa Bank, First Commercial Bank and Hua Nan Bank—plan to strengthen operations by diversifying marketing channels, expanding overseas businesses, lowering operational cost, and create more innovative financial products.

Insiders say that commercial banks basically dominate Taiwan’s financial market, generating revenue mainly from lending. However such business model is ineffective when the interest gap is insufficient to cover rising costs, revenue risks due to market volatilities, with the typically conservative state-run banks in Taiwan holding growing idle funds or deposits that cannot be refused, an exacerbating issue that is especially relevant amid sapped consumer confidence and unpredictable investment climate. The key question for the state-run banks in Taiwan is to brainstorm ways to find more profitable uses of such idle funds.

Taiwan’s banks make relatively less profit due to narrower rate gaps compared to those overseas, which they are trying to overcome by expanding their overseas operations in particularly markets with higher net interest margins. The banks will also focus more on enhancing efficiency to lower operating cost and differentiating financial products to raise profitability.

M.C. Lin, chairman of Hua Nan, emphasized that timely risk-control underpins the profitability of financial institutions, with profits potentially erased overnight by lack of vigilance.

Last year, Hua Nan saw its pretax ROA rate stand at 0.53% and ROE rate at 10.79%. Seeing this, Lin said, there is still a spacious room for the bank to improve its financial strength to meet the international standard of 1% for ROA and 15% for ROE.