Taiwanese banks face plenty of headwinds: a severely overbanked market, with 38 institutions even after a recent round of consolidation; the increasing threat from international players, with Standard Chartered, Citi and ABN Amro all having acquired local banks in the past 12 months; the consumer credit crisis that blighted one of the most profitable parts of the banking industry two years ago, and that is still hanging around in the form of restructured loans (at much less lucrative terms for the banks) on their balance sheets. But the biggest challenge they face is that they can’t go and set up in China.
It’s not as if Taiwanese businesses don’t engage with China just because of cross-strait tensions. In fact, the mainland accounts for about one-third of Taiwan’s exports, and the trend is for more and more involvement.
But banks can’t follow other businesses. They can set up in Hong Kong, but they can’t build a business in any meaningful form physically based on the mainland. One bank, Fubon, thought it had found a way around this by using its Hong Kong subsidiary as a vehicle to purchase a mainland bank, with the subsidiary regulated by the Hong Kong Monetary Authority rather than Taiwan’s regulator, but there’s still no sign of approval for that to move forward.