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When teaching banking staff at seminars or college
students in class, I always stress that nobody is perfect, and we all make
mistakes. My always-quoted motto to them reads like this.
If you make a mistake once, it is normal.
If you make the mistake twice, it is all right.
If you make the same mistake the third time, you go
to hell.
In this challenging global world, you cannot afford
to make a mistake even once.
With so many restrictions on overseas expansion by
banks and most of the small- and medium-sized companies moving to China,
Taiwan’s banking business has been struggling hard in order to survive, with
most of their profits and shares going down every year.
Layoff, early retirement, low morale and midlife
crisis all pose a great threat to existing banking staff in all local banks,
both government and private. Consolidation and merge between banks (or
between financial holding companies in the future) have also impacted
banking staff in their normal banking operations. Their future is clouded
with uncertainties and worries.
Now I would like to describe roughly this iffy
banking future by using some proverbs.
1. Don’t put all your eggs in our
basket.
Taiwan’s current trade surplus of US$261.18 billion
(at end of August 2006) was attributable to its export-oriented economy
during 1985 to 2000 and its trade surplus with China in the past few years.
With too much focus on trade finance, banks (these refer to local banks)
suffered great loss in extending loans to small- and medium-sized companies.
Because of loose risk management and lax lending policies, banks wrote off
huge amount of nonperforming loans (NPLs).
In order to survive, banks switched their business
priority during 2001 to 2005 to high-profit-but-high-risk loans in credit
card and cash card and consumer loans – again with loose risk management and
lax lending policies. This, in turn, plagued banks in writing off huge
amount of bad debts again, prompting the government to take immediate
measures to lessen the debt impact on banks and borrowers in these three
types of loans, leaving banks with piling idle funds with no returns on them.
To make matters worse, banks do not learn from their
mistake. They are now pushing hard for wealth management or private banking,
with few specialized and experienced wealth managers and staff to service
bank’s customers. As far as I know, wealth management (or private banking)
business in Asia is totally dominated by foreign banks, mostly based in Hong
Kong and Singapore (which is expected to outperform Switzerland in terms of
volume in the near future with its government’s full support and strict
supervision). With a population of 23 million (in which an estimated number
of 1 million has moved to China), Taiwan will not be the only place for
banks to promote wealth management business if restrictions on banks to move
abroad are not lifted. Taiwanese companies or individuals with deep pockets
would rather park their excess money with foreign banks either in Hong Kong
or Singapore in the form of wealth management – avoiding Taiwan’s high
income tax and strict regulations. In the July 2006 Asiamoney magazine, the
Best Global Private Banks in Asia 2006 (as voted by high-net-worth
individuals with US$1- 5 million under management with private banks) are
ranked as below:
1. Citigroup Private Bank
2. Deutsche Bank Private Wealth Management
3. HSBC Private Bank
4. UBS Wealth Management
5. BNP Paribas Private Bank
6. ABN AMRO Private Banking
7. Merrill Lynch
8. Standard Chartered
9. ING Asia Private Banking
10. SG Private Bank
Despite this change, some banks have already turned
back to trade finance (or corporate finance) which cannot be phased out as
demand from small- and medium-sized companies is still great.
2. Don’t count your chicken before they
are hatched.
Banks have been struggling hard to broaden their
market share by marketing new products to boost their profit, but internal
controls and good management are not strictly carried out. Banks tend to
take it for granted that an innovative and unique product will create
favorable returns – ignoring that their competitors may also follow suit
with better terms to customers.
Let us take an example. One of the private
commercial banks (say ‘ABC Bank’) in 2004, under a new General Manager, put
ahead a new product called ‘three in one’ loan package to borrowers - with a
target of NT$50 billion. The ‘three in one’ means that any borrower who has
three or more loans in other banks can combine the total loan amount and
apply to this ABC Bank for a ‘three in one’ loan at a average lending rate,
with the previous loans repaid by ABC Bank. Luckily, this target was reached.
However, a lot of bad loans quickly surfaced in 2005, forcing this bank to
write off about NT$10 billion starting from 2005 and the years to come.
There is no doubt that the General Manager was forced to quit, leaving the
bank’s shareholders, including investors and bank staff, holding the poor
baby.
3. Knowledge is power.
We always say that what you do not know will not
hurt you. This is ridiculous. In this knowledge-based economy and flat world,
what you do not know will kill you. People with knowledge in their special
fields can mean a great difference to a bank’s success or failure. Talented
people with knowledge or specialized consultants can be hired by banks if
favorable terms are provided. You may learn this from newspapers and
magazines that Singapore, India, China, Malaysia and even the United States
have put great efforts in their ‘talent search’ campaign from other
countries. Recently, there are good signs that several Taiwan’s banks have
already cooperated with some strategic partners (foreign banks or private
equity fund) to hold stage in them in order to share these strategic
partners’ expertise in risk management, innovation, marketing strategy and
internal controls.
In conclusion, Taiwan’s banks are now facing a bumpy
road and an uphill fight if they intend to go global. The government’s full
support is greatly needed since there are already big players in the market.
When the going gets tough, the tough get going. There is no way they can go
– just moving abroad, especially to China.
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