Moody’s optimistic M&As beneficial to Taiwan’s banking sector

Yet mergers of key players might be postponed due to the coming presidential elections.

New mergers led by state-controlled banks will help the banking sector solve its “over-banking” problem and further enhance profitability, Moody’s Investors Service said on Tuesday.

However, the government may not launch any meaningful mergers before the presidential election next year, Moody’s said.

“The current banking sector has the structural problem of over-banking that makes companies compete excessively, further declining their pricing on products and influencing down their profits,” Sally Yim, a Moody’s vice president and senior analyst for financial institutions in the Asia-Pacific region, said in Taipei.

The appropriate consolidation could solve this problem, Yim said, adding that there was a case to be made for state-controlled banks with higher market shares taking over smaller state banks to create better synergies.

Mergers led by three major financial holding companies in Taiwan — Cathay Financial Holdings Co, Chinatrust Financial Holding Co and Fubon Financial Holding Co — help as well, but may not make meaningful changes to the banking sector’s structure, Yim said.

Other than the slow pace of consolidation that makes the profitability of local banks consistently weaker compared with their peers, the high single-borrower concentration would be the other main concern, according to the ratings agency’s report.

For example, ProMOS Technologies Inc’s debt problems may increase the risk exposure to its bank creditors and lead to fluctuations in their earnings, Yim said. However, this year’s relative high spread may offset the negative impact from ProMOS Technologies, she said.

View the full story in Taipei Times.