Though 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) have fallen by more than a fifth, while Cathay Financial Holdings (market cap: $18 billion) has lost more than 30% of its value in the past 12 months amid rising interest rates. By contrast, the stock price of smaller Union Bank of Taiwan (market cap: $1.8 billion) has gained nearly 29% at the Taiwan Stock Exchange in the past year.
Union was one of 16 new banks granted a business license in the early 1990s as part of reforms that allowed private-sector entrants into what had been a mainly government-controlled industry during Taiwan’s martial law era that ended after nearly four decades in 1987. At the time, Union was controlled by its founder, Taiwan self-made entrepreneur Lin Rong San.
Lin died from heart failure at age 76 in 2015, and the family’s fortune now estimated by Forbes to be worth $2 billion is under his widow Lin Chang Su-O and her three sons: Andy Lin runs the family’s media business which includes the Liberty Times and Taipei Times newspapers, both friendly to the Taiwan’s ruling Democratic Progressive Party; Kevin Lin overseas real estate developer RSL; and Jeff Lin chairs Union.
It’s not a great profit jump this year that’s helping the bank’s shares – Union has outperformed big rivals but its own nine-month net profit fell 34% to NT$2.37 billion, or from NT$3.57 billion.
Rather, the bank’s appeal may be tied to its long-time image as an institution that focuses on in-person, relationship banking, Jeff Lin said in interview at the bank’s Taipei headquarters on Friday. “We’ve been very focused and grown organically,” Lin said. “You have to make some niches for yourself, and be firm in what you want to do in running the business,” he said. “I have always asked myself how to compete, but I’ve never been scared to compete.”
Nor is 59-year-old Lin rattled by an increase in military tension between the mainland and Taipei this year, particularly after an August visit to Taiwan by U.S. House of Representatives Speaker Nancy Pelosi. “I worry about it. I plan for it. I’ll be seriously looking at the issues. Am I scared? No, I’m not scared,” he said.
A Union competitive strength is a network of some 90 branches in Taiwan, Lin said. “We figure that we have to use that advantage to penetrate into neighborhoods, as well as people and companies around us,” he said. “When I look at my portfolio, I know my portfolio is very solid.”
Two potential risks lie ahead. One, Taiwan’s property market, is “way overheated,” said Lin, who holds an undergraduate degree from San Francisco State University with a major in computer science, along with a graduate degree in international business from National Taiwan University. “But we have been saying this for decades,” he smiled. The key questions for the market, he said, are: “Who’s going to buy, and who can afford it?”
Some are first-time homebuyers and also homeowners looking to upgrade. “This is healthy,” Lin said. Others, however, are investors. “We see more investors in this market nowadays rather than people who want to just buy a house and live there. They know the price that they pay is pretty high.”
Among those homeowners and property investors are members of the two million Taiwanese reportedly living on the mainland before the pandemic that have decided to spend more time back in Taiwan. “We really do see that wave come in the past two years,” Lin said.
“After they come back, they realize that they’re interested in purchasing a house,” particularly in the luxury market, Lin said.“There are a lot of them that have been away for a while. They want to come back and have a good life.”
Demographics are a factor in the trend. Many early Taiwan investors in the mainland when cross-Strait ties were warmer in the 1990s and 2000s are now over 60 years old. “Coming home is quite a big thing for them,” he said.
The decision to move on from the mainland may make business sense for some, too. “There’s not much of an advantage continuing on in China in terms of having a factory”due to relatively high costs, Lin said. Many “either move out to Vietnam or they move 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 the results of a survey this summer by the U.S.-based Center for Strategic and International Studies which found interest among Taiwan companies in reducing their exposure to the mainland. Some 76% of 525 Taiwan companies surveyed agreed with the statement: “Taiwan needs to reduce its economic dependence on mainland China,” while only 21% percent disagreed. Meanwhile, Taiwan’s Financial Supervisory Commission said last week bank industry loan exposure to the mainland fell to lowest percentage of its total net assets — 28.9% — in September since the government started collecting data nine years ago. (See post here.) Union’s is close to zero, Lin said.
Beyond property, another risk facing Lin is the world economic outlook. Rising interest rates internationally suggest slower growth or recession, he said. For Union, that means digging deeper to understand customers’ portfolios. “We are very well pledged,” so loans are safe, Lin said, though noting some clients could suffer from the global recession. For now, Lin agreed with a forecast by the Taiwan Institute of Economic Research of 2.91% GDP growth next year in part on the strength of domestic demand; that’s down from a prediction of 3.45% for 2022. As more Taiwan businesses renew ties back home, “it takes a few years to build up their facilities and all that. That’s the growth you can see coming,” he said.
He also sees promise in Southeast Asia. “I’ll be more interested to focus” on Vietnam, where Union has a representative office and has applied for a branch license, or other Southeast Asian countries, he said. Though smaller than the mainland, those markets are more transparent, and there is room to follow Taiwan customers switching plants southward from the mainland, Lin said. “We feel more familiar,” he said.
By contrast, mainland China and it’s once high-flying economy aren’t attractive to his bank at the moment. “There isn’t much of profit if you just focus on Taiwan businessmen in China” because of price competition, Lin said.
“That is not my focus,” he said, a thought that seems to be increasingly shared by others in Taiwan when it comes to mainland business.