Shares are being sold to financial institutions by Taiwan govt. to attract foreign buyers & encourage local mergers within the industry.
Around 45 banks & over 300 credit organizations battle for Taiwan's US$ 700 Billion assets. Moreover, banks are being urged to reduce bad debts following a lending spree in the past.
As per an index tracking 40 financial stocks in Taiwan, stocks have risen by 9.3 % since the start of September after it fell 0.6 % till August in 2006 and 15 % last year. Taiwan's benchmark index Taiex has risen by 5.8 % since August 31 2006. Bad debts have come down to one-fifth of their peak in 2002.
Recently, Standard Charted announced that it would acquire Taiwan's bank Hsinchu International in US $ 1.2 Billion therefore, becoming the 1st overseas bank to buy a Taiwanese Bank, as govt. promotes financial mergers.
Jerry Chen, of First Global has rated this reversal of trends as a beginning and if more overseas banks start to buy Taiwanese banks, Taiwan's banking sector will certainly grow, he said. He added that lenders have considerably shown improvements in credit quality thereby making inroads for a profitable outlook.
"Standard Charted deal has shown that strength of Taiwanese Banking Sector has always been underestimated. The deal will certainly generate interest among other overseas buyers," said an analyst at RNCOS.
Recent growth didn't have much affect on the price of acquisitions and banks in Taiwan are still quite cheap compared to other banks in Asia. Taiwan stocks, on an average, are sold for one and a half times the book value, below 2.1, the average figure for the stocks, as per Bloomberg figures.
To encourage banking mergers, govt. is selling share to private shareholders & financial institutions. Stake can be increased to minimum of 15-20 %, as per Finance Ministry. Over the last two years, govt. has reduced its stake to below 20% in 6 of its twelve banks controlled by states. NPL (Non Performing Loan) ratio has also reduced to 2.41 % at August end, from 2.83 % in 2005 & 11.74 % at beginning of 2002.
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