Despite being headquartered in one of the world’s busiest high-tech hubs, Taiwan’s largest financial institutions have had a tough year. Shares in Fubon Financial Holdings (market cap: $22 billion) are down more than a fifth, while Cathay Financial Holdings (market cap: $18 billion) has lost more than 30% of its value over the past 12 months on rising interest rates . In contrast, the smaller Union Bank of Taiwan (market cap: $1.8 billion) has gained almost 29% in share price over the past year on the Taiwan Stock Exchange.
Union was one of 16 new banks created in the early 1990s as part of reforms that allowed private-sector entrants into an industry that had become a major problem during Taiwan’s period of martial law, which ended after nearly four decades in 1987 government-controlled industry, has been granted a business license. At the time, Union was controlled by its founder, Taiwanese self-made entrepreneur Lin Rong San.
Lin died of heart failure in 2015 at the age of 76, and the family fortune, now valued by Forbes at $2 billion, belongs to his widow, Lin Chang Su-O, and their three sons: Andy Lin runs the family’s media business , which includes the Liberty Times and the Taipei Times newspapers, both friendly to Taiwan’s ruling Democratic Progressive Party; Kevin Lin real estate developer RSL abroad; and Jeff Lin is chairman of the union.
It’s not a big jump in earnings this year that’s helping the bank’s shares – Union has outperformed major peers, but its own nine-month net income fell 34% to NT$2.37 billion, or from NT$3.57 billion.
Rather, the bank’s appeal may be related to its longstanding image as an institution focused on personal relationship banking, Jeff Lin said in an interview at the bank’s Taipei headquarters on Friday. “We were very focused and growing organically,” Lin said. “You have to carve out some niches and be solid in what you want to do to run the business,” he said. “I’ve always wondered how to compete, but I’ve never been afraid to compete.”
The rise in military tensions between the mainland and Taipei this year, particularly following a visit by US House Speaker Nancy Pelosi to Taiwan in August, hasn’t unsettled Lin, 59. “I’m worried. I plan it. I will deal with the problems seriously. I am scared? No, I’m not afraid,” he said.
A competitive strength of the union is a network of about 90 branches in Taiwan, Lin said. “We think we need to use this advantage to invade neighborhoods and people and businesses around us,” he said. “When I look at my portfolio, I know that my portfolio is very solid.”
Two potential risks lie ahead. One, Taiwan’s real estate market, is “severely overheated,” said Lin, who holds a bachelor’s degree from San Francisco State University with a major in computer science and a degree in international business from National Taiwan University. “But we’ve been saying that for decades,” he smiled. The key questions for the market are: “Who will buy and who can afford it?”
Some are first-time home buyers and also homeowners looking for an upgrade. “It’s healthy,” Lin said. Others, however, are investors. “We see more investors in this market today than people who just want to buy a house and live there. They know the price they are paying is pretty high.”
Among these homeowners and real estate investors are members of the two million Taiwanese who reportedly lived on the mainland before the pandemic and have decided to spend more time in Taiwan. “We really see this wave coming in the last two years,” Lin said.
“After they return, they find that they are interested in buying a home,” Lin said, particularly in the luxury market. “A lot of them have been gone for a while. They want to come back and have a good life.”
Demographics are a factor in the trend. Many early Taiwanese mainland investors, when cross-strait relations were warmer in the 1990s and 2000s, are now in their 60s. “Coming home is a pretty big deal for them,” he said.
The decision to move away from the mainland may also make economic sense for some. “There isn’t much advantage when it comes to having a factory in China” because of the relatively high cost, Lin said. Many “are either moving to Vietnam or back to Taiwan.” The trend is reflected in rising prices in Taiwan for industrial land for factories, Lin said.
That movement of customers aligns with findings from a survey this summer by the US-based Center for Strategic and International Studies, which found an interest among Taiwanese companies in reducing their presence on the mainland. About 76% of the 525 Taiwanese companies surveyed agreed with the statement, “Taiwan must reduce its economic dependence on mainland China,” while only 21% disagreed. Meanwhile, Taiwan’s financial regulator said last week that the banking industry’s credit exposure to the mainland fell to the lowest percentage of its total net assets — 28.9% — in September since the government began collecting data nine years ago. (See post here.) Unions is near zero, Lin said.
Aside from property, another risk for Lin is the outlook for the global economy. Rising interest rates internationally point to slower growth or a recession, he said. For Union, that means digging deeper to understand clients’ portfolios. “We’re very well bonded,” so the loans are safe, Lin said, although he noted some customers may be suffering from the global recession. For now, Lin agreed with a Taiwan Institute of Economic Research forecast of 2.91% GDP growth next year, partly due to the strength of domestic demand; that’s down from a 3.45% forecast for 2022. As more and more Taiwanese companies renew their ties back home, “it takes a couple of years to build up their facilities and all that. That’s the growth you can see coming,” he said.
He also looks promising in Southeast Asia. “I will focus more on Vietnam,” where Union has a representative office and has applied for a branch license, or other Southeast Asian countries, he said. Although smaller than the mainland, these markets are more transparent and there is room to follow Taiwanese customers moving their facilities south from the mainland, Lin said. “We feel more familiar,” he said.
In contrast, mainland China and its once-boosting economy are currently unattractive to his bank. “There isn’t much gain by just focusing on Taiwanese businessmen in China,” Lin said of the price competition.
“That’s not my focus,” he said, a thought increasingly shared by others in Taiwan when it comes to mainland business.
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