In April this year, the Australia and New Zealand Bank (ANZ) became the fifth and latest foreign bank to incorporate a subsidiary in Taiwan. With the inclusion of ANZ Bank (Taiwan) Ltd., the country’s banking sector now comprises 34 domestic banks, 28 foreign bank branch offices and five locally incorporated foreign bank subsidiaries.
The Banking Bureau of the Cabinet-level Financial Supervisory Commission (FSC) held a meeting in March 2012 for foreign banks operating in Taiwan. In his opening remarks at the meeting, Kuei Hsien-nung (桂先農), director-general of the Banking Bureau, observed that the 28 foreign bank branches operating in Taiwan had garnered before-tax profits of NT$16.8 billion (US$570.2 million) in 2011. That sum would have reached NT$29.6 billion (US$1 billion) with the inclusion of the 2011 profits of the three locally incorporated foreign subsidiaries then operating in Taiwan: Citibank Taiwan Ltd., HSBC Bank (Taiwan) Ltd. and Standard Chartered Bank (Taiwan) Ltd. Citibank’s global headquarters are in the United States and Standard Chartered’s are in the United Kingdom, while HSBC is an acronym for mainland China-based Hongkong and Shanghai Banking Corp.
According to FSC statistics, from January through the end of March this year, the combined before-tax profits of the locally incorporated subsidiaries of Citibank, the Development Bank of Singapore (DBS), HSBC and Standard Chartered reached NT$5 billion (US$169.7 million). Over the same period, the branch offices operated by 28 foreign banks earned before-tax profits of NT$2.92 billion (US$97.3 million).
At the 2012 Banking Bureau meeting, Kuei praised the foreign banks and their local subsidiaries for introducing advanced financial service concepts and developing financial products for local markets. By doing so, foreign banks had contributed greatly to building a sound local talent base and helping to promote the internationalization of Taiwan’s financial market, he said.
Local residents participate in an ANZ-sponsored coastal cleanup event in Kaohsiung, southern Taiwan. (Photo Courtesy of ANZ Bank (Taiwan) Ltd.)
The Republic of China government has long set its sights on making the country a major financial hub in the Asia-Pacific area. “If we want to be a regional financial center,” says Huang Hsi-ho (黃錫和), deputy director of the Banking Bureau’s Foreign Banks Division, “then the local presence of foreign institutions and their management expertise are required.” Huang points out that many of the high-level managers at Taiwan banks have benefited from the experience of working in the domestic offices of foreign banks. “There, they receive systematic training in areas like management skills, risk control and product marketing,” he says. “Working there also helps them develop a more complete worldview.”
Huang notes that in comparison with their domestic counterparts, foreign banks generally have more developed global networks, which help them provide financial services for multinational corporations and high-end clients who want to diversify their wealth management by investing in international markets. The networks of foreign banks can aid local companies as they seek to expand overseas. For example, if Taiwanese companies want to do business in Australia or New Zealand, they can turn to ANZ for help, says Terry King (經天瑞), chief executive officer of ANZ Bank (Taiwan) Ltd. “With our head office’s resources and our global connections, especially in the Asia-Pacific region, we can offer substantial support for local companies and quickly familiarize them with their foreign partners,” he says.
In fact, King says that as the biggest bank in New Zealand, ANZ played a role in helping Taiwan reach an economic cooperation agreement with that country in July this year. Officially known as the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (ANZTEC), the pact is the first of its kind between Taiwan and a developed economy or a country with which Taiwan does not have official diplomatic ties. ANZTEC is significant because it helps integrate Taiwan into regional and global markets, which will benefit the country’s export-oriented economy.
In response to the growing role of Asian markets in the global economy, the world’s major banks are pursuing a more extensive presence in the region, and a growing number of those banks view Taiwan as an important part of their Asia strategy due to the size of the country’s economy and its close connections to the vast mainland Chinese market. “Taiwan has a higher GDP than those of Singapore and Hong Kong combined,” says Ajay Kanwal, president and chief executive officer of Standard Chartered’s local subsidiary, adding that many in the international community are surprised to learn that fact. Taiwan’s capital, talent pool and the knowledge of “what to do to compete” give the country the potential to play a more significant regional role in the international banking sector, he says.
When Standard Chartered merged with Hsinchu International Bank based in Hsinchu City, northern Taiwan in 2007, Standard Chartered Bank (Taiwan) Ltd. became the nation’s first locally incorporated foreign bank subsidiary. “We’ve been strongly committed to Taiwan,” Kanwal says. Standard Chartered’s 88 local branches comprise the largest service network operated by such a subsidiary in Taiwan. Meanwhile, Citibank increased its local presence by merging with the Bank of Overseas Chinese in 2007 and now operates more than 60 branch offices around Taiwan.
With 88 branch offices, Standard Chartered has the largest service network of any locally incorporated foreign bank in Taiwan. (Photo by Huang Chung-hsin)
Competitiveness and Growth
In March this year, Standard Chartered and the UK-based newspaper Financial Times organized the Taiwan Economic Summit in Taipei to provide a forum for discussing the country’s competitiveness and economic growth. The summit was attended by business leaders, financial experts, government officials and economists including Thomas Sargent, co-winner of the 2011 Nobel Prize in Economics.
As evinced by the growing number of locally incorporated foreign bank subsidiaries, Taiwan offers a business opportunity that is often too good for multinational financial firms to pass up. In his opening remarks at the summit, President Ma Ying-jeou (馬英九) referred to several international surveys that underscore the strength of Taiwan’s competitive business environment. For example, Ma mentioned a 2012 report by Business Risk Service—a monitoring service run by Business Environment Risk Intelligence—that ranked Taiwan No. 4 in the world in the category of profit opportunity recommendation. He also noted that the World Bank publication Doing Business 2013, which assesses the business regulatory environment of 185 economies, ranks Taiwan No. 16 in the world, a nine-place improvement over the country’s ranking in 2012.
The government has promoted consolidation in Taiwan’s crowded financial sector for more than a decade in order to develop stronger, more profitable banks. The Financial Restructuring Fund was established in 2001 to bail out troubled banks. The government appointed temporary managers for banks that received bailouts and encouraged them to merge with other financial institutions. In recent years, foreign banks have helped that process along through their purchases of domestic banks, including those with financial problems. In March 2008, for example, HSBC purchased The Chinese Bank, which had received assistance through the Financial Restructuring Fund, while DBS followed in May that year by acquiring Bowa Bank, another distressed local bank.
Jerry Chen (陳亮丞), general manager and head of DBS Bank (Taiwan) Ltd., says that prior to obtaining the 39 branch offices from Bowa, DBS had just one office in Taiwan, and that was operated much like an adjunct to the bank’s regional headquarters in Hong Kong. “Before purchasing Bowa, we concentrated on corporate banking for larger enterprises,” Chen says, “but now our business scope has extended to cover small and medium-sized enterprises [SMEs] as well as consumer banking.” Providing corporate loans for SMEs is now one of the fastest growing aspects of DBS’ business in Taiwan, Chen adds.
To develop deeper connections in Taiwan, locally incorporated foreign bank subsidiaries have gotten involved in corporate social responsibility projects. “We enable groups that promote the public interest to move toward becoming social enterprises. Under that business model, they don’t have to rely solely on donations,” Chen says. DBS assists such groups by offering them financial consultation services and sponsoring their job training programs, among other means.
May this year saw the launch of the Standard Chartered Visually Impaired Employment Advisory Council, which aims to form a corporate alliance that promotes a friendly working environment for visually impaired people. In June this year, the Standard Chartered Taipei City Charity Run was held to raise awareness and funds that will go toward creating more job opportunities for the visually impaired. More than 150 visually impaired runners participated in the event with the assistance of Standard Charter employees who had received special guide training.
DBS Bank (Taiwan) Ltd. has expanded its business scope to include services for consumers and smaller enterprises. (Photo by Huang Chung-hsin)
Not a Boutique Bank
For its part, ANZ Bank has sponsored environmental activities such as coastal cleanup drives as well as programs that help younger members of disadvantaged groups learn more about managing their finances. “We’ve made an effort to get closer to local people and the land. We’re not a boutique bank. We not only serve larger enterprises, the field we started from, but also everyday people,” ANZ’s King says, referring to his bank’s recent focus on consumer services such as credit cards, personal financing and mortgages.
Looking ahead, King suggests that the government could attract more foreign banks to Taiwan by giving them access to a wider range of business lines. The FSC’s Huang points out, however, that the same regulatory standards are applied to foreign and domestic banks in Taiwan. “We recognize the inventiveness and liveliness that foreign banks have brought to local financial markets,” he says, “but we also have to maintain financial safety and risk control.”
In the bigger picture, however, Huang says the contributions of foreign banks are helping the country develop greater financial strength. In turn, that will bolster Taiwan’s efforts to become a major regional finance center.
Write to Pat Gao at cjkao@mofa.gov.tw