Managing Asia

Managing Asia

Fubon Chairman: 'We want to be able to swim freely in China'

Reporting by Christine Tan | Written by Aza Wee Sile
Meet the man at the helm of Taiwan's Fubon

Fubon Financial Holdings had made waves as the first Taiwanese financial institution to extend its reach into mainland China in spite of tense cross-straits relations.

Fubon set the precedent when it invested in mainland lender Xiamen Bank through its Hong Kong subsidiary. Getting the approval to acquire a stake in Xiamen Bank was nothing short of a regulatory nightmare, said Daniel Tsai, the chairman of Fubon Financial holdings.

Daniel and his brother Richard Tsai topped the Forbes 2014 list for Taiwan's richest, with a combined net worth of $10 billion.

"[It took] three years of hard work to get regulators' approval from both sides, and [it is probable that] even Hong Kong's regulators had to seek some kind of consent from Beijing," Tsai told CNBC's Managing Asia.

Tsai noted that because of the approval delay, the Taiwanese financial heavyweight had "missed the best part of China's very dynamic economic growth" between 2000 and 2010.

"The political environment in Taiwan [back when the agreement was first signed in 2005] was not very friendly to people like us who were trying to invest in China," he said.

Fubon Financial Holding Co. bank branch in Taipei, Taiwan
Lam Yik Fei | Bloomberg | Getty Images

Political tensions were running high back in 2005, because mainland China had passed the Anti-Secession Law, which firmly stated China's stance for reunification and formalized the use of "non-peaceful means" on Taiwan if it were to declare independence. The mainland and Taiwan had split ways in 1949 during a civil war.

Under the leadership of Ma Ying-jeou, Taiwan grew closer economic ties with the mainland and both countries resumed the three links of transportation, commerce and communications in 2008.

Last year, Fubon went on to acquire another Chinese bank, but the hurdles were of a different nature this time around.

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The challenge was in beating competitors to acquire the 80 percent stake in the Shanghai-based Sino Bank. Getting regulators' approval was easier after Taiwan signed the memorandum of understanding (MOU) which opened both financial markets to the two countries, said Tsai.

Expect headwinds next year

"Taiwan is probably the toughest banking industry in Asia with very tight spreads so we had to generate other fee incomes," commented Tsai. "Luckily Taiwan is a country with very high savings, and so our life insurance company has also thrived by selling savings products."

By selling insurance products, Tsai said Fubon Financials had aggregated a lot of assets which were later invested overseas following the relaxation of foreign investment limits for insurance companies in 2013.

"Now 50 percent of our life assets are invested overseas, and we could look for higher yields," said Tsai. "I think that's why we are more successful than other financial institutions who focus only on Taiwan."

Fubon outperformed most local peers because of factors such as a solid banking topline, minimal credit costs and positive investment spread, according to a September note from CIMB.

In August, Taiwan slashed its 2015 gross domestic product growth forecast as China's economy slowed and the Taiwanese dollar's outperformance hurt export competitiveness. Taiwan's central bank also cut its benchmark interest rates by 12.5 basis points to 1.75 percent in September, for the first time since 2009.

According to a CIMB analysis of Taiwanese banks and life insurers last month, every 12.5 basis points interest rate cut in the central bank's benchmark rate will lower the banks' net interest margin (NIM) by 3 basis points while pushing their bottom lines down by 1 to 5 percent.

Insurers' annual investment income would also be reduced by less than 1 percent, with investment returns sliding 14 to 18 basis points. Overall, CIMB noted that the impact of Taiwan's central bank would be manageable. A basis point is 1/100th of a percentage point.

Fubon Financial's chairman does not expect smooth sailing ahead ahead, as uncertainty over and the global financial turbulence is likely to "put even more pressure on [Fubon] starting from next year."

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"I do think that banking is still a very promising business in China [as] the whole banking service [becomes] more liberalized," said Tsai who added that he sees opportunities in small and medium enterprises that are underserved.

Fubon is currently waiting for a renminbi retail license approval from Chinese regulators. This would enable it to be the first full-service Taiwanese bank in China, and "make a difference" in servicing the Taiwanese-owned businesses in China and gain a foothold in China's retail banking industry.

"I hope that improving cross-straits relationship will pass the point of no return that there will only be more improvement [instead of] backtracking," said Tsai. "China is just like an ocean, so we want to be able to swim freely in China."

— Reporting by Christine Tan | Written by Aza Wee Sile