Since deregulation in banking industry since 1990s, the competition in the domestic banking industry has become fiercer. That Taiwan followed China’s accession to the WTO has also opened up the domestic banking market to more foreign investors which has worsened this situation. In addition, the Taiwanese banking sector is too fragmented compared to other developed countries. For instance, EIU ViewsWire ( Nov. 28, 2005) reported that Taipei city has 850 branches, or 3.4 for every 10,000 people—almost three times as many as New York and two-thirds more than it needs, reckons McKinsey, a consultancy. Also the Taiwan of 23m people has about 45 commercial banks, 14 financial holding companies (FHCs, which own at least one bank plus insurance and broking subsidiaries) and over 300 rural credit
co-operatives. Most are tiny. The top five lenders have just 35% of the market, versus 60-80%
in most developed countries.
Therefore, we can reasonably believe that reinforcing the competitive strength and creating the advantage of competition would be the most pressing target for domestic banks.
Fortunately, the deregulations in mergers including the Financial Institutions Merger Act and the Financial Holding Company Act opened up a great way for banks to strengthen their
Taiwanese banking markets, banks should rethink their strategies no matter in risk control, market penetration strategy and identifying appropriate customer target groups.
Take example, some banks with great financial structure should try to operate overseas to facilitate the performance of domestic business. Independent banks should expand their business scope and new products in the market and search for strategic alliance with security and insurance business. However, operating some unfamiliar business may conceal
unnoticeable but huge risk. Therefore, when evaluating the performance of these new business must take risk into consideration. Finally, mergers and acquisitions would be a possible way to expand the size of banks, but there are some risks involved.
In summary, to compete in an increasingly price driven markets, there is a growing need for banks to examine their operation efficiency compared to their peers, ensure their competitive advantages compared to their rivals, and establish a long-term market position.
By examining the relative efficiency compared to their peers, banks can easily set up their benchmarks. By reinforcing their competitive advantages among their rivals, banks can earn oligopoly rents from their unique and leading businesses. Finally, a possible way exists at present as the experience of developed countries to establish a long-term market position is to earn a big bank oligopoly by merger.
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APPENDIXES
APPENDIX 1. 1993-2005 NUMBER OF DOMESTIC AND FOREIGN BANKS
Head office Branches Domestic Banks
Domestic Banks
Local Branches of
Foreign Banks Number Increase rate (%)
Local Branches of Foreign Banks
1993 41 37 1 382 - 55
1994 42 37 1 577 14.11% 57
1995 42 38 1 807 14.58% 58
1996 42 41 1 936 7.14% 65
1997 47 45 2 176 12.40% 69
1998 48 46 2 404 10.48% 72
1999 52 41 2 576 7.15% 71
2000 53 39 2 693 4.54% 70
2001 53 38 3 005 11.59% 69
2002 52 36 3 068 2.10% 68
2003 50 36 3 173 3.42% 69
2004 49 35 3 189 0.50% 67
2005Jan. 48 35 3 192 0.09% 67
2005Feb. 48 35 3 192 0.00% 67
2005Mar. 47 35 3 202 0.31% 67
2005Apr. 47 35 3 207 0.16% 67
2005May 47 35 3 208 0.03% 67
2005Jun. 47 35 3 217 0.28% 67
2005Jul. 47 36 3 218 0.03% 68
2005Aug. 47 36 3 221 0.09% 68
2005Sep. 47 36 3 220 -0.03% 68
2005Oct. 47 36 3 223 0.09% 68
2005Nov. 46 36 3 224 0.03% 68
2005Dec. 45 36 3 239 0.47% 68
Source: Summarized by “Financial Statistics: Overview of Banking Sector” prepared by Banking Bureau, Financial Supervisory Commission, Executive Yuan (Online《http://www.banking.gov.tw/public/data/boma/stat/index/index-1.xls)
Domestic Banks Local Branches of Foreign Banks
Assets Net Worth Deposits Loans Assets Net Worth Deposits Loans 1993 104 404 6 107 60 702 65 461 5 241 218 1 225 2 634 1994 121 017 7 324 70 183 77 819 5 950 253 1 483 2 806 1995 132 060 7 922 78 061 85 369 6 736 313 1 887 3 252 1996 144 127 9 259 86 068 90 276 7 408 357 2 390 3 495 1997 155 028 10 831 99 248 105 953 9 753 426 3 585 4 083 1998 175 479 13 392 112 500 114 059 8 738 427 3 594 3 899 1999 192 601 15 066 122 419 121 483 9 004 390 4 084 3 889 2000 207 751 15 991 131 304 128 962 13 187 475 5 470 3 993 2001 217 408 15 964 140 610 127 151 13 233 508 4 889 3 795 2002 220 971 14 228 144 679 125 049 14 091 542 4 944 3 681 2003 237 408 14 420 153 911 131 311 18 368 551 5 552 3 736 2004 255 053 15 744 164 954 145 987 19 842 608 5 878 4 304 Jan.2005 253 078 15 860 164 005 146 045 20 100 604 5 887 4 412 Feb.2005 253 852 15 971 164 280 146 397 20 017 607 5 847 4 405 Mar.2005 254 400 16 635 165 636 148 264 20 591 615 5 832 4 459 Apr.2005 255 447 16 460 165 445 148 224 21 242 614 5 787 4 467 May-05 255 439 16 542 165 435 149 894 20 308 620 5 569 4 598 Jun.2005 258 098 16 649 169 950 151 549 19 231 524 5 676 4 591 Jul.2005 259 485 16 857 169 676 151 275 19 396 503 5 754 4 656 Aug.2005 260 183 16 989 169 656 151 979 19 872 525 5 687 4 700 Sep.2005 260 588 17 016 170 034 153 794 20 403 538 5 783 4 870 Oct.2005 261 107 17 539 169 609 153 142 20 825 548 5 811 4 979 Nov.2005 262 996 17 411 171 720 154 363 20 907 545 5 781 4 937 Dec.2005 268 753 16 977 175 888 157 631 20 405 532 5 877 4 858 Source: Summarized by “Financial Statistics: Overview of the Banking Sector” prepared by
the Banking Bureau, Financial Supervisory Commission, Executive Yuan (Online
《http://www.banking.gov.tw/public/data/boma/stat/index/index-2.xls, http://www.banking.gov.tw/public/data/boma/stat/index/index-3.xls and http://www.banking.gov.tw/public/data/boma/stat/index/index-8.xls》)
APPENDIX 3. REFERENCE OF NAME OF BANK AND ITS ABBREVIATION USED IN THIS THESIS
Abbreviation Full name of banks
Bank Of China # The International Commercial Bank Of China Bank Of Taipei International Bank Of Taipei
Bowa Bowa Bank
Cathay # Cathay United Bank
Chang Hwa Chang Hwa Commercial Bank Chinatrust # Chinatrust Commercial Bank Chinese Bank The Chinese Bank
Chinfon Chinfon Bank
Cosmos Cosmos Bank, Taiwan
E.Sun # E.Sun Commercial Bank, Ltd.
Entie Entie Commercial Bank
Far Eastern Far Eastern International Bank First # First Commercial Bank
Fuhwa # Fuhwa Commercial Bank
Hua Nan # Hua Nan Commercial , Ltd.
Hwatai Hwatai Bank
Jih Sun # Jih Sun International Bank Overseas Chinese Bank Of Overseas Chinese
Shin Kong # Taiwan Shin Kong Commerical Bank Sinopac # Bank Sinopac Company Limited
Sunny Sunny Bank Ltd.
Ta Chong Ta Chong Bank
Taishin # Taishin International Bank
Union Union Bank Of Taiwan
Note: Names with remark “#” indicate that these banks are subsidiaries of a Financial Holding Company.
BANKS REGULATED BY THE CBC Items
【Ｃ】
Total risk based capital / Risk-weighted assets Tier 1 capital / Risk-weighted assets
Liability / Equity (multiple) Equity / Asset
【Ａ】
Non-performing loan ratio Loan loss reserves / NPLs
The possible loss of classified assets / reserves
【Ｅ】
Net income before tax(NIBT) / Average equity (NIBT + loan loss provision) / Average equity NIBT / Average asset
(NIBT + loan loss provision) / Average asset Net interest income / NIBT
NIBT / Operating revenue
NIBT / Employees (in thousand of NT dollars)
【Ｌ】
Liquidity ratio (monthly average of daily data) Loans / Deposits
Time deposits / Deposits NCDs / Time deposits
Accumulated gap of assets and liabilities(180 days) / Equity
【Ｓ】(Interest rate sensitivity less than 1 year)
Interest rate sensitivity assets /Interest rate sensitivity liabilities Interest rate sensitivity gap/Equity
【Ｇ】
Deposit growth rate Loan growth rate Investment growth rate Guarantee growth rate
APPENDIX 5. DESCRIPTIVE STATISTICS OF THE UNADJUSTED DATA SET NPL(%) ROE(%) ROA(%) Margin(%) P/L (times) GDR(%) GLR(%)
mean 2.90 0.26 0.09 1.01 245.97 14.26 12.52
median 2.26 5.23 0.40 9.84 338.81 7.07 10.13
S.D. 2.45 19.78 1.18 30.00 2,123.32 14.66 14.26
Var. 6.01 391.16 1.40 900.15 4,508,508.42 214.88 203.46
Range 11.30 83.66 5.35 143.31 11,581.23 57.12 68.86
Min 0.50 -63.71 -3.74 -113.54 -7,880.81 -4.10 -16.30
Max 11.80 19.95 1.61 29.77 3,700.42 53.02 52.56
N 24.00 24.00 24.00 24.00 24.00 24.00 24.00
APPENDIX 6. CORRELATION COEFFICIENTS OF UNADJUSTED DATA SET NPL ROE ROA Margin P/L GDR GLR
NPL 1.00000
ROE -0.21886 1.00000
ROA -0.22181 0.98851 1.00000
Margin -0.17060 0.97596 0.96879 1.00000
P/L -0.19674 0.93841 0.93716 0.97728 1.00000
GDR -0.30013 0.20204 0.18648 0.19930 0.17309 1.00000
GLR -0.27405 0.31123 0.28011 0.30515 0.25990 0.90454 1.00000
APPENDIX 7. CONSUMER PRICE INDICES 2001 100.00
2002 99.63 2003 99.29 2004 100.89 2005 103.26
Source: Price Index Statistic 423, 2006 March Table 1-4 Urban Consumer Price Indices, pg.22-23 《http://www.stat.gov.tw/public/data/dgbas03/bs3/book/cpi5.xls》