Taiwan Today

Yung Hung-ching always maintains a low profile. He has no intention of showing off, yet he displays the shrewdness and prestige of a Shanghai merchant. With a cousin who just happens to be the former vice president of the People's Republic of China, Yung has connections that extend across the Taiwan Strait. Under his guidance, the Shanghai Commercial and Savings Bank is heading the list of all banks in Taiwan.

Turn back the clock to Shanghai in the year 1930, when Yung Hung-ching was seven years old and the youngest son in his family. Every Sunday he went on factory inspection rounds with his father, T.K. Yung, who was known as both the "Flour King" and the "Textiles King" of China. The senior Yung expanded his businesses with great vigor and opened factories all over China. Before the Sino-Japanese War (1937-1945), he owned fourteen flour mills and nine textile mills.

Now come back to 1990s Taipei. Yung Hung-ching is seventy-five years old. Ever since he became chairman of the board of the Shanghai Commercial and Savings Bank (SCSB), he has looked to his father's entrepreneurial spirit as a model for his institution's expansion.

Under Yung Hung-ching's leadership, the number of SCSB branches has grown from four to forty-eight, the number of employees has grown from around 300 to 1,900, and the bank's net profits have attained an average annual growth rate of thirty percent. According to a report in the July 1998 issue of England's The Banker magazine, SCSB is the thirteenth largest bank in Taiwan. However, its financial soundness, profits, remuneration rate of assets, and net profits all topped the maga zine's local bank list. (Please see chart on page 48.) The September 1997 issue of Euromoney magazine gave the bank the highest grade among 450 banks from forty newly industrialized countries. Euromoney named the bank "Taiwan's Best Bank" the following year.

Accompanying the Republic of China on a rocky journey of economic development, SCSB has written a legendary chapter into local financial history.

SCSB used to be the largest private bank in the Chinese mainland and had over 100 branches. After the mainland fell to communist rule and the bank rebuilt itself in Taiwan, its scale became that of a "headquarters" plus two branches for about twenty years, making it the smallest bank in Taiwan.

The person who put the bank in the spotlight again is Yung Hung-ching, who is also a second-generation family stock holder of the bank. He has managed to maneuver the bank's expansion at a steady pace and without unnecessary publicity or sleight of hand. An official of the Bureau of Monetary Affairs at the Ministry of Finance (MOF) and the deputy general manager of another bank both have the impression that SCSB is stable in its approach to business. "If I had to describe the Shanghai Commercial and Savings Bank in one word, 'firm' would be it. In two words, it would be 'firm' and 'stable,'" says an assistant manager of a newer bank.

Without any advertisement campaigns or public relations work, each share of SCSB stock has created an annual surplus of NT$7 (US 22 cents) in five consecutive years--becoming the island's bank stock leader. Many wonder how an institution that resonates minimal exposure can not only survive in today's financial environment but also prevail. The largest source of the bank's profits is the long-term revenue of its overseas investments. Its 1997 statement indicates that its net profits before taxation were NT$6.3 billion (US$196.9 million). About sixty percent of its net profit, which is around NT$4 billion (US$125 million), comes from long-term investments. This almost invisible investment revenue started to pop up after Yung Hung -ching took over as chairman.

In 1993, while facing greater-than-ever competition from new banks, SCSB, for the first time in its history, adopted the equity method to evaluate revenues from decades of overseas investments. There was an NT$10 billion (US$312.5 million) surplus between original capital and the net value of overseas investments in that year. The bank decided to distribute this balance during the following ten years. In other words, the bank will have a surplus of NT$1 billion in its accounting books each year until the year 2002. Except for accumulated revenues earmarked for distribution, an NT$2-3 billion (US$62.5 -93.75 million) annual profit (from overseas investments) since 1993 makes the bank's financial reports continue to look good.

With such impressive profits, SCSB has widened the gap between itself and other banks. Long-term, overseas invest ments that gradually make money are a good example of how the bank conducts business.

The spokesperson of a newly established bank (who, like many local bankers, prefers to remain anonymous in media interviews) explains that through Shancom Reconstruction, a Liberia-registered company held by SCSB, the bank holds eighty percent of the shares of the Shanghai Commercial Bank (SCB) in Hong Kong. "And the Shanghai Commercial Bank, Hong Kong, is one heck of a steady source for profits," says the spokesperson. Looking at its balance sheet, he explains that loans take up only half of its total assets, while cash and savings take up about forty percent. "Liquidity is very, very high," he emphasizes. "That means the bank can handle any situation at any time."

SCSB also holds thirty percent of the shares of the Paofoong Insurance Company in Hong Kong. "These are the overseas investments we've made--and that's pretty much it," sums up SCSB President Chou Ching-shyong. Another high-ranking manager of the bank jokes about a different overseas affiliation. "If the authorities in Beijing ever give us back our more than 100 branches in the mainland, we'll become very rich," he says.

The bank's overseas stock investments have, until recently, been a closely guarded secret. Because of the sensitivity of cross-strait relations, Yung Hung-ching had been reluctant to reveal this secret. At present, mainland investors hold twenty -eight percent of the bank's shares and overseas investors hold about forty percent. Well-known shareholders in the bank's earlier stages were Sung Tzu-wen, Kung Hsiang-hsi, and Sun Yat-sen, the ROC's founder. Some of the grandchildren of these people remain shareholders of the bank.

Yung Hung-ching's cousin, Rong Yiren, is the former vice president of the People's Republic of China. The bank's political and business connections on both sides of the Strait have always raised some eyebrows, but Yung is open about this. "Cousins are very close relatives, but we couldn't even write to each other in the past," Yung says. "Whenever I go to Shanghai, I'll visit him. When he comes to Hong Kong, he'll pay me a visit, too. But I don't do business with my cousin."

In addition to chairing SCSB, Yung is a director of SCB in Hong Kong, a managing director of Nanyang Cotton Mill in Hong Kong, and president of Shanghai's Sung Nan Textile Company. With businesses extended across the strait and in Hong Kong, Yung faces the entanglement of kinship and political reality with calmness. Nevertheless, the eighty-four-year-old bank is trapped in historical baggage, and every move it makes elicits a political interpretation. This is why Yung keeps a low profile.

Being brought up in an affluent Shanghai family, Yung has always maintained the traditional manner and attire of a gentleman--well-tailored dark suits, ties with small patterns, neatly styled silver hair, and polished leather shoes. He has distinguished, but not easily distinguishable, tastes. Yung speaks Mandarin with a heavy Shanghai accent and spends much of his time in Hong Kong. He refers to the mainland as "domestic." When asked if he is an ROC citizen, he hesitates: "Do I have to answer this?" Pressed for an answer, he finally says, "I suppose I can be counted as one."

In order to do business in all three places, Yung has mapped out a strategy: he uses his time for development and keeps a very low profile in politics. SCSB has rarely done promotional campaigns in the past, and President Chou indicates that this is because more than twenty percent of its shareholders are in the mainland. "According to the Statute Governing the Rela tions Between the People of the Taiwan Area and the Mainland Area, their shares and profits are now held in a trust by the MOF. They can claim their rights only when both sides of the Strait are unified," states Chou. "They know their rights anyway, but they can't claim them now. Why do we always have to remind them how much money this bank has made?"

The relationship between SCSB and Hong Kong's SCB was once mysterious. It was not until the bank adopted the equity accounting method and exposed the value of its overseas investments that it was discovered that the Hong Kong bank is a daughter company to Taiwan's SCSB. "We used to think that the one in Hong Kong was 'the boss,'" says Huang Sheng -tzu, a senior manager of the bank's eastern Taipei branch. Another manager who has served over thirty years at SCSB cannot help but jest, "We're a mystery bank."

Likewise, the reason SCSB did not want to reveal its identity as a big shareholder of SCB in Hong Kong, was its concern about the latter's developments in the former British colony. "England was one of the earliest countries to recognize the PRC. We didn't know what kind of difficulties we would have encountered if we had revealed that the Hong Kong Shanghai bank was in fact a Taiwan investment," says a senior manager.

That veil of mystery seems to have separated business from politics. Following the unraveling of its enigma, SCSB has attempted to recover its past glory, especially after Yung Hung-ching took over as vice chairman in 1983. Yung, who does not talk much in front of strangers, gives a conservative impression. However, he cannot help but feel that his two predecessors who put their focus on Hong Kong were too reserved when it came to conducting business in Taiwan.

One of Yung's first goals was to make SCSB as well-known as SCB in Hong Kong. The building of business in Taiwan fell behind that of Hong Kong for fifteen years, with the first eighteen years spent just lying low. "We were in fact lagging thirty-three years behind. Well, it was finally time for us to start the race," Yung reflects.

He applied some of the strategies his father used when starting a business. The first step was to build as many bases as possible. In 1985, SCSB's Taichung branch opened--its first step for expansion in Taiwan. Then, in 1988 and for four con secutive years, the bank opened five or six branches each year. Yung, who is prone to making quick business moves, simply could not stop the expansion. In 1993, the MOF approved the bank's application for five more branches. An MOF official remembers an episode. At that time, Yung wished to slow down a bit, and he had made a breakfast appointment with the MOF official in order to hear the latter's opinion. The official says that the Taipei Business Bank, which had more than sixty branches in the Taipei area alone, made approximately NT$1.7 billion (US$53.1 million) per year. As SCSB at that time made only about NT$1 billion (US$31.3 million) a year, the official suggested that more branches be opened. Yung could not wait until breakfast was over--he rushed back to headquarters, called up Chou, and told him to open five more branches in Taipei. Chou said that the bank "didn't have the manpower," but Yung abruptly responded by saying that "manpower is your business."

Yung's quick decisions have actually helped SCSB stand firm in Taipei, and under his insistence, five more branches were opened there. A strange coincidence was that starting in 1994, the MOF allowed banks to open only one branch per year in Taipei. While SCSB increased its number of branches, its business grew as well. There was an average of fifty percent growth annually in the size of its savings and loans. Yung's wish of catching up with SCB had been realized. According to statistics from The Banker, SCSB is ranked 327th among all banks in the world, surpassing SCB, which ranks 390th.

Another important decision by Yung was to locate a new headquarters building at the intersection of Chungshan North Road and Minchuan East Road, one of Taipei's busiest business areas. The old headquarters was located on Jen-ai Road, and Yung felt its somewhat smaller scale was not ideal for expansion.

The new headquarters building is on the site of a once-famous hotel. In 1990, when Yung heard the news that the building was to be sold, he rushed back to Taiwan from Hong Kong. Potential buyers included the United World Chinese Commercial Bank, and a Japanese hotel. Yung invited the seller (who happened to be of Shanghai descent) for coffee and quickly made a deal. When the bank moved into the building and celebrated its eightieth anniversary, it was blessed with more publicity.

The SCSB staff regarded the move as a milestone. With a wave of new banks mushrooming at that time, President Chou says he had worried that if the bank did not take the opportunity to make known the fact that it had eighty years of history, people might get the wrong impression. "If we had not done promotional events, people would most likely have treated our bank as one of the newcomers," says Chou.

The rapidly changing financial environment in Taiwan has forced SCSB to take constant action to attract attention. The strong profits from its long-term overseas investments have become a focus of public curiosity. Nevertheless, SCSB is also an outstanding performer in traditional banking. An analysis of its 1997 profits shows that even without revenues from its long-term overseas investments, the surplus of each share of its stock is NT$3 (US 9 cents), surpassing all new banks and outperforming most established ones.

The foreign exchange business is SCSB's major battlefield. When it first started business in Shanghai, it was the first Chinese bank to offer forex services. After it resumed operations in Taiwan, it was one of only three banks that offered this service. At present, the scope of the bank's foreign exchange business is about six percent of the market share of local banks.

With a staff of twenty-four members, SCSB's Offshore Banking Branch made a net profit of NT$180 million (US$5.6 million) in 1997, ten percent of the bank's total net profits. SCSB does triangular trade through SCB. No other local banks have ever come close to its efficiency and cost-effectiveness. According to James S.L. Han, manager of the Offshore Banking Branch, other local banks have only a liaison office or a branch in Hong Kong, while SCB is the sixth-largest bank in Hong Kong. SCSB's Taiwan headquarters has also sent staff to Hong Kong to offer services for Taiwan businessmen.

"There's great flexibility in how the Shanghai bank conducts its business. It would rather make less money and insist on providing its clients with convenient, effective service," comments Yang Lu-lu, a senior accountant of a US company's Taiwan branch and a regular SCSB customer.
 

Since service is provided by the employees of the bank, SCSB regards its staff as its most important asset. During its annual interview season, the bank picks fifty to sixty new employees from among 4,000 to 5,000 applicants. The most important procedure of all is the interview. Those who score highest on the written test will not be hired if they do not pass the interview. The bank's senior supervisors and administrators, who are adept at "reading" people, take turns leading an inter view committee. M.S. Chen, the director of SCSB's personnel department, is a member of the committee and has interviewed and hired over 1,500 employees for the bank. His basic guideline is, "The person has to look pleasant, and easily make a good impression on people." The bank's careful selection has led to a turnover rate of only three percent during the past few years.

SCSB's low turnover rate can also be attributed to the way the bank treats its employees. In addition to the new head quarters that give SCSB great publicity and set a solid foundation for expansion, an achievement of which Yung feels proud is the bank's ability to offer employees stock shares.

It was 1989 when Yung made a break with tradition and allowed his employees to buy stocks. Each employee was allowed to use the ten-NT-dollar-per-share price to subscribe to the bank's stocks, based on his or her employment history. Since that year on, SCSB's year-end bonuses have been paid in stock shares. Each employee who has served over ten years in the bank owns stocks worth over NT$10 million (US$312,500). Almost all SCSB employees can sit back and claim that they don't have to worry about life after retirement.

While the bank provides its employees an environment without economic worries, it demands a strong work ethic. Each new employee for a business unit means an increase of NT$1 million (US$31,250) in overhead. The profit-center system used throughout all of its branches is one way the bank ensures that its employees will work hard for the company. Betty Liu, senior manager of the bank's savings department, explains that although the center for her department--a building on Minsheng East Road--is owned by the bank itself, her department has to pay over NT$1 million in monthly rent to headquarters. Branch rankings based on seasonal net profits are used to decide year-end perks and bonuses.

Yung is rather generous with his employees, and this has increased the cohesiveness of company constituents. The staff calls him "Mr. Yung." Han of the Offshore Banking Branch says that it is too much of a tongue twister to call him "Mr. Chairman Yung."

Though Yung is the chairman of the board, he is always approachable. For example, Executive Vice President Kenneth D.S. Hong is twenty years younger than Yung, yet Yung always calls him "Hong Hsiung" --meaning "Elder Brother Hong." "I hope colleagues can be like brothers," says Yung.

Born in the Chinese Year of the Pig, Yung is particularly fond of piggy miniatures. A large part of his office is decorated with pig-related items. Many regard it as an indication that the serious banker retains a childlike heart. When he is working at his Taipei headquarters, he always has lunch at the twelfth-floor cafeteria, just as most of his staff do. Eating on a regular steel tray with staff seems to have shortened the distance between him and his employees.

Despite his advancing years, Yung's biggest dream is to run the greatest private bank across the Strait, and indeed, SCSB does have the potential. The fact that it started out in Shanghai and now holds eighty percent of SCB in Hong Kong is its biggest advantage. Given the strange political environment of cross-strait relations, there are simply too many variables in the future of the bank. But who knows whether those mysterious mainland shareholders and overseas investments will not become the bank's greatest assets?

After all, greater China, including both sides of the Strait plus Hong Kong, is the land of opportunity. "Who wouldn't want to have the kind of connections the Shanghai bank has? The situation is somewhat sensitive and they can't brag about it too much, but having those kinds of connections is what counts," says the envious spokesperson of a new bank.

SCSB has expanded rapidly during the past few years. For further expansion, finding adequate human resources will be its greatest challenge, a branch manager says. The average number of years of previous experience among incoming staff is becoming smaller, and the average age of a branch manager is getting younger. "But headquarters continues to open one branch after another," says the manager.

A high degree of similarity in terms of background among the staff is also a hidden disadvantage. The assistant manager of a new bank explains that almost all senior administrators of SCSB started out as entry-level employees who have climbed the corporate ladder. Therefore, there is hardly any stimuli from outside. "Will the bank be able to handle the ever-changing financial environment while its staff are trained to do things the old way?" he asks. "The bank does have an advantage in the mainland market in the long term, but I doubt whether it can compete at the international level."

Right now, SCSB remains in top shape among local banks. Reserved profits in its 1997 report are two-and-a-half times that of its capital, while the net value is four times that of its capital. An official from the MOF's Bureau of Monetary Affairs says that "a bank so wealthy and stable has the capability to face all kinds of crises."

In a corporate meeting last August, Yung displayed the "Best Bank" certificate given by Euromoney magazine. While passing it along, he asked senior administrators, "What will be our position next year?" After lifting the veil of mystery and revealing its historical assets and connections, can it continue down the road of prosperity?

Translated with permission from "Yung Hung-
ching Leads the Legend of the Shanghai Commercial
and Savings Bank," by Chen Ya-huei,
CommonWealth, September 1998, pp. 184-192.