Is Stanchart being over-optimistic with its Taiwan acquisition?

Standard Chartered, a U.K. bank which earns mostly from Asia, looks forward to more profits from Taiwan this year after the merge with Hsinchu International Bank.

“The combination of Standard Chartered's business with Hsinchu Bank's will give us greater profitability,'' said James McCabe, chief executive of Standard Chartered Bank Taiwan. An upturn in consumer spending and growth in the bank's wealth management and corporate banking operations will help earnings, he said.

The London-based bank expects to finish combining its operations in Taiwan with Hsinchu Bank's by late 2007. Standard Chartered became the first overseas company to take over a Taiwan bank, as the government is encouraging mergers to thin out an industry where about 40 banks and more than 300 credit associations compete for $700 billion of assets.

Hsinchu International Bank also will be renamed Standard Chartered Bank Taiwan in the second half, according to the London bank. Standard Chartered now has a stake of 98.5 percent in Hsinchu Bank and together they have 86 branches on the island.

Taiwan has been dealing with mounting credit-card defaults since the second half of last year. Taiwanese banks wrote off more than $3 billion of soured card debts in 2006. Hsinchu International Bank, with about 2.5 million customers, lost NT$1.7 billion ($51 million) for the first nine months of last year, compared with a NT$2.6 billion profit a year earlier.

Is Taiwan finally ready for foreign banking investors? Will the government’s dream of consolidation be realised or will the spectre of credit card defaults continue to haunt Taiwan’s commercial banks?