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Ted Chen

The China Post

Publication Date : 19-03-2013

Taiwan has too many banks and they need to be consolidated, Central Bank Governor Perng Fai-nan, said yesterday, adding that all proposed bank mergers and acquisitions need to be conducted with the principles of fairness, transparency and objectivity.

Perng indicated that in more difficult economic times, the existence of state-operated banks is required, as the private sector is quick to reduce lending when it is needed the most. One or two state-owned bank would be sufficient for Taiwan's economy, said Perng.

Citing a study conducted by McKinsey & Co in September 2004, which set the optimal number of banks in Taiwan at 10, Perng said that Taiwan suffers from the phenomenon of “over-banking,” with most of the forty or so banks being too small to benefit from the economies of scale. However, Perng indicated that the 2004 study is merely a useful reference for upcoming polices, as much has changed since.

While citing precedents seen in the US during the recent financial crisis, Perng cautioned against the creation of excessively large banks that may become “too big to fail,” thus forcing a financial bailout should they fail.

Perng cited the acquisition of Central Trust of China by Bank of Taiwan, and the acquisition of Farmers Bank  by the Taiwan Cooperative Bank as prime examples of consolidation.